
Figure 4.14 The Budget Constraint
The budget constraint demonstrates the options available to a consumer given her income and the prices of the two goods. The horizontal intercept is the quantity of lattes the consumer could afford if she spent all of her income (
I) on lattes,
I/
Plattes. The vertical intercept is the quantity of burritos she could afford if she spent all of her income on burritos,
I/
Pburritos. Given this, the slope of the budget constraint is the negative of the ratio of the two prices, –
Plattes/
Pburritos.