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- Consumer Choice

Still Confused?

Try reviewing these fundamentals first

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Get Started NowStart now and get better maths marks!

Get Started NowStart now and get better maths marks!

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Get Started Now- Intro Lesson: a4:44
- Intro Lesson: b9:36

Recall the budget line from last section. We will look further into what the equation of this line, and changes that could affect the budget equations.

__The Budget Equation __

If all income has been used for the goods, then the budget line is expressed by the linear equation:

Where

$P_x$ → price of good

$P_y$ → price of good

Note: The slope and y-intercept of the budget equation can be found by putting the equation into the form
*y = mx + b*.

Thus,

__Changes to the Budget Equation __

The budget equation can be changed in 6 basic ways.

- Introduction
**Budget Equation Overview:**a)__The Budget Equation__- All the available options when income is used
- $Q_x P_x + Q_y P_y$ =
*I* - $Q_x \,$→$\,$ quantity of
*x*, $Q_y \,$→$\,$ quantity of =*y* - $P_x \,$→$\,$ price of
*x*, $P_y \,$→$\,$ price of =*y* - $I \,$→$\,$ income

b)__Changes to the Budget Equation__- Increase in the price of good
*x* - Decrease in the price of good
*x* - Increase in the price of good
*y* - Decrease in the price of good
*y*