Macroeconomics › Section B · Choice in a world of scarcity › Topic B.1
Choosing within a budget constraint
Everyone faces one: a limited amount of income and prices that turn it into a menu of possible purchases. The budget constraint is the economist's first model of individual choice, and it makes two ideas precise - what you can afford, and what each affordable choice gives up.
In this topic
- Scarcity, one person at a time
- Reading the budget constraint
- Worked example: drawing Maya's line
- The budget equation
- Slope is opportunity cost
- Worked example: what one more smoothie costs
- Opportunity cost beyond price tags
- Worked example: the full cost of a cheap flight
- Choosing along the line
- Sunk costs: look forward
- Common mistakes to avoid
- Key takeaways
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