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Econ Videos 79 videos

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Econ: What is a Budget Constraint? 2 Views


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Description:

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

00:00

And finance Allah shmoop What is budget constraint Oh a

00:07

budget is that thing your financial advisor keeps telling you

00:10

to make figure out how much you have to spend

00:12

and where you want to spend it and that's it

00:14

A constraint Is that feeling You get your wasteland after

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

00:26

budget that gets that feeling around its middle right It

00:28

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

00:34

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

00:36

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

00:39

You have thirty three in your pocket and fifty total

00:41

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

00:44

You can either take your date Teo Aunt May and

00:46

three the revenge Or you can probably just squeeze out

00:49

dinner for two at the PFC etchings And that is

00:53

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

00:55

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

00:58

get dinner You have to pick one or the other

01:00

the concept of budget constraint attacks your love life Budget

01:04

constraints described the purchasing choices people have to make when

01:07

they have a limited income in economic circles The budget

01:10

constraint problem is usually posed as a choice between two

01:13

items This procedure allows economist to do their favorite activity

01:17

Make graphs Your brother is coming home after being in

01:20

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

01:23

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

01:26

to bring him home and let him keep a coma

01:28

in the living room Your family decides to celebrate the

01:31

homecoming anyway and they put you in charge of decorating

01:33

the house as if he notices you narrow your decoration

01:37

choices to two items you think are perfect for this

01:39

mccobb situation You can pick from balloons shaped like colostomy

01:43

bags and streamers that look like the chords of ivy

01:46

machines Well the colostomy balloons cost five dollars each and

01:50

the ivy streamers cost fifteen dollars each You have ninety

01:53

bucks to spend well There are all sorts of combinations

01:55

of purchases you can make You could buy eighteen balloons

01:58

and no streamers Are you Goodbye six streamers and no

02:01

balloon See they both total ninety bucks Or you could

02:03

buy a combo like two of the streamers and twelve

02:06

balloons or maybe four streamers and six balloons And this

02:09

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

02:12

graph all the choices and the graph represents your decorating

02:15

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

02:19

either possible situations that you could choose from Well any

02:22

time you buy something when you spend an amount of

02:24

money you give up the chance to buy all the

02:26

other things you could have bought with that money for

02:29

the coma party Well each stream or you buy for

02:32

fifteen box means there are three five dollar balloons you

02:35

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

02:39

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

02:41

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

02:44

constraint situation another concept important to a budget constraints situation

02:49

Marginal utility Well this idea measures the added value you

02:53

get from acquiring one mohr of something like Take the

02:56

coma party situation You buy only balloons eighteen balloons and

03:00

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

03:03

balloon Does it make the party that much more festive

03:07

Well but then buying only seventeen balloons Well does Yoon

03:10

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

03:12

streamer Buying seventeen balloons instead of eighteen only saves you

03:15

five bucks But if you buy fifteen balloons instead of

03:18

eighteen well that allows you to purchase a streamer Well

03:21

if you want to handle the situation like an economist

03:23

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

03:26

you to sign each decoration a quantitative festive nous kwo

03:29

shen or index Are questions better there Yeah Q F

03:32

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

03:35

diminishing return for conflict with each added balloon Well the

03:38

first balloon in a room makes AH room much more

03:40

festive Going from zero balloons Toe one balloon takes a

03:43

situation from just sitting around with a guy in a

03:46

coma to a party However the eighteenth alone in a

03:49

room is hardly noticeable The previous seventeen balloons have already

03:52

done most of the work of creating that party atmosphere

03:54

Rock on baby well graphing the cost of each decoration

03:57

and the various festive quotients And economists can figure out

04:00

the optimal balloon to streamer ratio maximizing the total party

04:04

vibe But Keating within you know your budget constraint Well

04:07

by measuring the marginal utility of each item you can

04:09

choose among your opportunity set Which combination of balloons and

04:13

streamers gets you the most utility That is the combo

04:16

that best decorates the house for the money Not that

04:19

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

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