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  • Figure 3.6: Karim's Budget Constraint, Feasible Set, and Equation at a €30 Wage

Budget Constraint Graph vs. Income Function Graph

The graphical representation of the budget constraint, which plots consumption against free time, can be viewed as a mirror image of the income function, which plots income against hours worked. Both are depicted as straight lines, and the magnitude of their slope is determined by the wage rate. However, the income function slopes upward (positive slope), reflecting an increase in income with more work, while the budget constraint slopes downward (negative slope), reflecting a decrease in possible consumption with more free time.

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  • Budget Constraint Graph vs. Income Function Graph

  • Infeasibility of Point C in Karim's Choice

  • A Feasible but Suboptimal Choice (Point D)

  • Suboptimality of Choices Below the Budget Constraint

  • Activity: Analyzing the Effect of a Wage Increase on Karim's Budget Constraint

  • Figure E3.2: Marina’s Feasible Frontier

  • Calculating the Slope of the Budget Constraint