Individuals’ Economizing Problem, limited income, unlimited wants, budget line.

1. Individuals’ Economizing
Problem

2. What is 'Income'
Income is money that an individual or business receives in
exchange for providing a good or service or through
investing capital.
Most people age 65 and under receive the majority of their
income from a salary or wages earned from a job.
Investments, pensions and Social Security are primary
sources of income for retirees.

3. The income of all people different.
Despite this we all have a finite
amount of income, even the
wealthiest among us.
So we must decide how to spend our
money.
Limited income

4. Average monthly disposable salary
Country Amount
1. Bermuda 4,234.68 $
2. Switzerland 3,566.28 $
3. United Arab Emirates 3,246.18 $
4. Norway 3,196.30 $
5. Qatar 3,093.22 $
6. United States 2,887.13 $
7. Singapore 2,883.18 $
8. Luxembourg 2,781.20 $
9. Australia 2,779.53 $
10. Hong Kong 2,677.01 $
……………………………….. ……………………………………. ……………………………………

5. Unlimited wants
Needs are material items people need for survival, such as food, clothing, housing, and water. Until
the Industrial Revolution, the vast majority of the world's population struggled for access to basic
human needs.
Wants are then the psychological desires that are not essential for life but that make life just a little
more enjoyable.
Because we have only limited income (usually
through our work) but seemingly infinite wants, it
is in our interests to economize: to choose
goods and services that maximize our
satisfaction.

6. Budget line

7. A budget line or price line represents the various combinations of
two goods which can be purchased with a given money income
and assumed prices of goods.
Example of buying coffee or biscuits.

8. • A consumer has weekly income of $60. He purchases only two goods,
packets of biscuits and packets of coffee. The price of each packet of biscuits
is $6 and the price of each packet of coffee is $12.
Question practice:
If consumer spends all his income on biscuits how many biscuits does he
buy?
$60 / $6 = 10 biscuits
If consumer spends all his income on coffee how many coffee jar does he
buy?
$60 / $12 = 5 jars

9. Market Basket Packets of Biscuits Per Week Packets of Coffee Per Week
A 10 0
B 8 1
C 6 2
D 4 3
E 2 4
F 0 5
Income $60 Per Week = Packets of Biscuits Costs $6 = Packets of Coffee is Priced $12 Each
The various alternative market baskets (combinations of goods) are shown in the table below:
(i) Market basket A in the table above shows that if the whole amounts of $60 is spent on the purchase of biscuits, then the
consumer buys 10 packets of biscuits at a price of $6 each and nothing is left to purchase coffee.
(ii) Market basket F shows the other extreme. If the consumer spends the entire amount of $60 on the purchase of coffee, a
maximum of 5 packets of coffee can be purchased with it at a price of $12 each with nothing left over for the purchase of
biscuits.
(iii) The intermediate market baskets B to E shows the mixes of packets of biscuits and packets of coffee that the cost a total
of $60. For example, in combination of market basket C, the consumer can purchase 6 packets of biscuits and 2 packets of
coffee with a total cost of $60.

10. Diagram/Figure:

11. Shifts in Budget Line:
• The budget line is determined by the income of the consumer and the prices
of goods in the market. If there is a change in the income of the consumer or
in the prices of goods, the budget line shifts in response to a exchange in
these two factors.

12. • 1) Income changes: When there is change in the income of the consumer, the prices
of goods remaining the same, the price line shifts from the original position. It shifts
upward or to the right hand side in a parallel position with the rise in income.
• A fall in the level of income, product prices remaining unchanged, the price line
shifts left side from the original position. With a higher income, the consumer can
purchase more of both goods than before but the cost of one good in terms of the
other remains the same.

13. • 2) Price changes. Now let us consider that there is a change in the price of one
good. The income of the consumer and price of other good is held constant. When
there is a fall in the price of one good say commodity A, the consumer purchases
more of that good than before. A price change causes the budget line to rotate
about point L

14. That’s all.
Thank for your attention.