Economics 101 - Budget Constraints

[nngella]

If you want to learn basic economics, I will try to discuss some here:

TOPIC 1: Budget Constraints

Let
P₁= Price of commodity 1
P₂= Price of commodity 2
x₁= Number of units of commodity 1
x₂= Number of units of commodity 2
m = your income/budget

Let us assume you have a consumption bundle containing x₁ units of commodity 1 and x₂ units of commodity 2 having P₁ and P₂ the prices of commodity 1 and 2, respectively, and you have an income/budget amounting to m.

Q1: When is the consumption bundle affordable to you?
The consumption bundle is affordable if the total price of having commodity 1 and commodity 2 is less than or equal to your income, or P₁x₁ + P₂x₂ = m.

You can graph the equation P₁x₁ + P₂x₂ = m:



Anything within the budget line are the consumption bundles that you can afford while anything beyond the budget line are the consumption bundles that you cannot afford.



Reference: Varian (2014). Intermediate Microeconomics: A Modern Approach (Ninth Edition)

FOR DISCUSSION (give your answer in the comments):
a. How do the budget set and budget constraint change as income, m, increases?
b. How do the budget set and budget constraint change as income, m, decreases?
c. How do the budget set and budget constraint change as the price of commodity 1, P₁, decreases?

[franky1]

your over complicating things by trying to sound mathematical with variables and charts

lets make it simple

if income is 2000
and excess after bills is 500

the 500 is your bundle

when it comes to investing in 2 assets.. you have to decide which is best to invest more or less into

EG
if A had a ATH of 25 and is currently at 20
if B had a ATH of 50 and is currently at 20

then A is in the higher zone of 80% of premium
then B is in the low-mid zone of 40% of premium

i would put most of my 500 bundle into B because the downside is less risky and has better upside
where as A has more down side but not much upside potential

then making a judgement you decide the amount that goes to A and B
EG
A:100
B:400

if B continues to go down then that is discount to buy more, more cheaply.. so you adjust your bundle
EG
A:50
B:450

if B goes up and A comes down.. then you adjust accordingly ..

if you wanted to work out how to split the bundle based on math

based on 2 assets which can go upto ATH again being 100% premium x2
means out of 200% the AB of 80% and 40%(120%) is 80 away from 200%
or more simply
500 income / 80 = 6.25income per percentage from top
so A being 20 from top  = 125 of income
so B being 60 from top  = 375 of income