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#cfa #cfa-level-1 #economics #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-4-the-opportunity-set #study-session-4

Let Warren’s income be given by I, the price he must pay for a slice of bread be PB, and the price he must pay for an ounce of wine be PW. Warren has freedom to spend his income any way he chooses, so long as the expenditure on bread plus the expenditure on wine does not exceed his income per time period. We can represent this income constraint (or budget constraint ) with the following expression:

Equation (3) 

PBQB + PWQWI

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4. THE OPPORTUNITY SET: CONSUMPTION, PRODUCTION, AND INVESTMENT CHOICE
nd wine and were allowed to exchange at some pre-determined ratio. Although that circumstance is possible, a more realistic situation would be if Warren or Smith had a given income with which to purchase bread and wine at fixed market prices. <span>Let Warren’s income be given by I, the price he must pay for a slice of bread be P B , and the price he must pay for an ounce of wine be P W . Warren has freedom to spend his income any way he chooses, so long as the expenditure on bread plus the expenditure on wine does not exceed his income per time period. We can represent this income constraint (or budget constraint ) with the following expression: Equation (3)  P B Q B + P W Q W ≤ I This expression simply constrains Warren to spend, in total, no more than his income. At this stage of our analysis, we are assuming a one-period model. In effect, then, Wa


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