Econ: What is a Budget Constraint?

What is a Budget Constraint? Consumers have a panoply of choices in goods and services. The total accumulation of goods and services that a consumer can purchase with their income at market prices over a specified timeframe is called one’s budget constraint. Budget constraint analysis traces purchasing choices and behaviors.

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Transcript

00:17

a trip to the Happy have her bountiful buffet Just

00:20

can't eat another bite So put those concept together Budget

00:24

constraint on Well that's what this video is about A

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budget that gets that feeling around its middle right It

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just can't eat another bite Theo It's the last Friday

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of the month and well you don't get your next

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paycheck until Monday They're seventeen dollars in your bank account

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You have thirty three in your pocket and fifty total

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to your name But you've got a big date tonight

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You can either take your date Teo Aunt May and

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three the revenge Or you can probably just squeeze out

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dinner for two at the PFC etchings And that is

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at least as you only drink water and don't order

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APS desserts But you can't go to the movies and

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get dinner You have to pick one or the other

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the concept of budget constraint attacks your love life Budget

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constraints described the purchasing choices people have to make when

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they have a limited income in economic circles The budget

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constraint problem is usually posed as a choice between two

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items This procedure allows economist to do their favorite activity

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Make graphs Your brother is coming home after being in

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a coma for three years He's not actually out of

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the coma but his insurance ran out So you're going

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to bring him home and let him keep a coma

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in the living room Your family decides to celebrate the

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homecoming anyway and they put you in charge of decorating

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the house as if he notices you narrow your decoration

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choices to two items you think are perfect for this

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mccobb situation You can pick from balloons shaped like colostomy

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bags and streamers that look like the chords of ivy

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machines Well the colostomy balloons cost five dollars each and

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the ivy streamers cost fifteen dollars each You have ninety

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bucks to spend well There are all sorts of combinations

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of purchases you can make You could buy eighteen balloons

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and no streamers Are you Goodbye six streamers and no

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balloon See they both total ninety bucks Or you could

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buy a combo like two of the streamers and twelve

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balloons or maybe four streamers and six balloons And this

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is presuming you're going to spend all ninety dollars well

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graph all the choices and the graph represents your decorating

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budget constraint It outlines what's called your opportunity set I

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either possible situations that you could choose from Well any

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time you buy something when you spend an amount of

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money you give up the chance to buy all the

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other things you could have bought with that money for

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the coma party Well each stream or you buy for

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fifteen box means there are three five dollar balloons you

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can't buy the opportunity cost for purchasing one decoration is

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that you'd necessarily have less dote up Spend on the

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other decorations It's the price for dealing with a budget

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constraint situation another concept important to a budget constraints situation

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Marginal utility Well this idea measures the added value you

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get from acquiring one mohr of something like Take the

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coma party situation You buy only balloons eighteen balloons and

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no streamers What What's the added benefit of that eighteenth

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balloon Does it make the party that much more festive

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Well but then buying only seventeen balloons Well does Yoon

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really no good You still can't afford a fifteen dollars

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streamer Buying seventeen balloons instead of eighteen only saves you

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five bucks But if you buy fifteen balloons instead of

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eighteen well that allows you to purchase a streamer Well

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if you want to handle the situation like an economist

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you'd graft the total for festive nous of the party

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you to sign each decoration a quantitative festive nous kwo

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shen or index Are questions better there Yeah Q F

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Q work Well you take into account that there's a

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diminishing return for conflict with each added balloon Well the

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first balloon in a room makes AH room much more

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festive Going from zero balloons Toe one balloon takes a

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situation from just sitting around with a guy in a

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coma to a party However the eighteenth alone in a

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room is hardly noticeable The previous seventeen balloons have already

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done most of the work of creating that party atmosphere

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Rock on baby well graphing the cost of each decoration

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and the various festive quotients And economists can figure out

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the optimal balloon to streamer ratio maximizing the total party

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vibe But Keating within you know your budget constraint Well

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by measuring the marginal utility of each item you can

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choose among your opportunity set Which combination of balloons and

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streamers gets you the most utility That is the combo

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that best decorates the house for the money Not that

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your brother is going to notice but we're just saying 00:04:26.349 --> [endTime] Hundred and tasty