What is a budget limitation?
Budget limitation is the concept of what is called consumer theory in economics that shows how limited the consumer's expenditure capacity is limited by its income or budget. For example, if the consumer is to spend only $ 100 (USD) and wants to buy some wine for a price of $ 10 per bottle, then he can only afford to buy 10 bottles. As an economic tool, the budget limitation can be remembered on the graph and is usually shown by an example of a consumer with a specific budget designed to buy two products with certain prices. Such an example will show many possible combinations of both products that the consumer can afford to buy within his budget. To prove this relationship, economists usually use an essential example of a consumer who has a specific amount of money and a withdrawal between two goods, such as good AA good B. However, the consumer may decide to buy a combination of good A and good B according to his preferences and specific needs. Any combination is more or less achievable if it remains inpart of the budget. In practice, however, consumers buy more than only two goods, but the use of two goods in the example keeps things simple.
For illustration, one could consider a consumer who has a budget of $ 1,000 per week to spend a good A and good B. Good costs $ 5 and good B costs $ 20. In extremes, the consumer can decide to spend all his money for good and, which means he could buy 200 good units per week. If he bought only good B, then 50 units would get a week.
on the graph, good A and good B can be represented on the Y -axis and X -axis. The y axis is a vertical line and the x -axis is a horizontal line for The graph. Using the above example, the point may be marked on the Y -axis of 200, marked as point A, and the next point can be marked on the X V -axis, marked as point B. After it is called the budget composition, can be diagonally drawn from point A to B, and this will visually proveZAT All possible combinations of good A and good B, as limited by $ 1,000, a budget of $ 1,000. The tendency shows the maximum number of goods and services that can be purchased at a specific budget and specific prices.
The graph of the budget limitation is calculated using the following formula: "Rise Over Run". In other words, the "rise", which is a change in the value of Y, is divided by a change in value x, also referred to as "running". In the above example, the change would be 200 and the change in X would be 50, so the tendency would be 200/50, which equals 4.
There is also what is called an intertemporal budget limitation, which is a possible limit of expenditure on Adulo, depending on the sources available during this period. This means that the intertemporal budget limit equals the whole income that the consumer earns or expects to earn during his life, including any other assets he might have. This concept is also based on the fact that consumers decide how to spend their money and jFor its purposes, it is to help them make the most of their resources, whether it is now or in the future.
Theoretically, the international budget limitation can help all kinds of consumers to decide to spend money now or later in the future. For example, with this theory, they can make some calculations and find out that they can postpone current consumption and instead invest their money. For example, this approach can be richer in the future, thus increasing their expenditure capacity, which means they could eventually get more by increasing their money than they spend.