Core lesson
Consumer Choice and Budget Constraints
Prices and income determine what is affordable; preferences determine which affordable bundle is chosen.
Budget first, preference second
For goods A and B, the budget boundary is PAA + PBB = I. Bundles below it are affordable; bundles above it are not. The equation does not rank affordable bundles.
Income is $48, A costs $12 and B costs $8. The intercepts are 4 units of A and 6 units of B. Bundle (2A, 3B) costs $48; bundle (3A, 2B) costs $52 and is unaffordable.
Marginal reasoning
A textbook interior optimum compares marginal utility per dollar: MUA/PA and MUB/PB. If the first is higher, shifting a small amount of spending toward A can increase utility, subject to divisibility and other constraints. This is a model, not a claim that people calculate utility scores.
What purchase data cannot reveal alone
- A purchase can reflect stockouts, defaults, search costs, credit limits or household bargaining.
- A price change rotates the budget line; an income change shifts it in parallel when prices stay fixed.
- Observed choice under one budget does not identify a complete demand curve or causal price response.
Mini practice
- With I=$60, PA=$15 and PB=$10, find both intercepts.
- Is (2A,3B) affordable?
- If PA falls to $10, which intercept changes?
- 4 units of A and 6 units of B.
- Yes. It costs $60 and lies on the boundary.
- The A intercept rises to 6; the B intercept remains 6, so the line rotates outward.
Sources
- OpenStax, Principles of Economics 3e: Consumer Choices.
- OECD consumer policy resources for real-market frictions and consumer protection context.
Sources accessed 10 October 2026. Dollar figures are teaching examples, not market observations.