Budget Constraint

The budget constraint represents what a consumer can buy. $$X p_X + Y p_Y \leq I$$

Example

Alice has $8 to buy chocolate (X) and strawberries (Y). So she can buy chocolate and strawberries, as long as she spends less than $8.

The price of a chocolate bar is $4. She finds strawberries for $2 each.

Her budget constraint is $$4X + 2Y \leq 8$$

A tiny bit of algebra gives $$Y \leq - 2X + 4$$

The budget constraint is the shaded area in the plot above.

Question

Alice has $1297 to buy chocolate (X) and strawberries (Y). The price of a chocolate is $93 and the price of a strawberry is $92.

Can she afford 4 chocolate bars and 7 strawberries at the same time?

In total, 4 chocolates and 7 strawberries cost Alice

$$93 \times 4 + 92 \times 7 = 1016$$

Yes! Alice can offord 4 chocolate bars and 7 strawberries.