# 6 questions on "Producer Behaviour - The opportunity set or Budget Constraint"

The model that underlines all individual purchase decisions, which in turn add up to the demand curves, is called:
The theory of rational consumer choice
A bundle of goods is:
A particular combination of two or more goods. By convention, the first number of the pair in any bundle represents the good measured along the horizontal axis.
A budget constraint is:
The set of all bundles that exactly exhausts the consumer's income at given prices. Also called the budget line.
In addition to being able to buy any of the bundles along her budget line, the consumer is also able to purchase any bundle that lies within the budget triangle bounded by it. The bundles in or within the budget triangle are also referred to as the:
Feasible set/ affordable set
The slope and the position of the budget constraint are fully determined by:
- the consumers income (the effect of a change in income is much like the effect of an equal proportional change in all prices).
- the prices of the respective goods (when the prices of the goods change in the same proportion, the opportunity cost of one good in terms of the other remains the same as before. The slope of a budget constraint tells us only about relative prices, nothing about the prices in absolute terms)
When we have more than three goods, the budget constraint becomes what mathematicians call a hyperplane or multidimensional plane. This is difficult to represent geometrically. That is why we use a composite good:
In a choice between a good X and numerous other goods, the amount of money the consumer spends on those other goods.
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