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Budget constraints

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1. What is a budget constraint? How does a budget constraint explain consumer choices when used in conjunction with indifference curves? Explain what happens if a household looses half of their income, using a budget constraint and indifference curves in your discussion.

2. There are 168 hours in a week. Of these, about 60 hours will go to sleeping (more or less). That leaves 108 hours for which we have a choice in terms of how we will spend that time. Letâ??s assume that we will spend the 108 hours in either work or leisure, or some kind of combination of the two.

A. What factors would you consider in making the choice of how you will allocate your time between work and leisure?
B. Would these factors change as your earnings increased? As you aged?

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Solution Summary

The budget constraint is analyzed along with the indifference curve.