Governmental Budget Constraint

And finance Allah shmoop What is budget constraint Oh a

budget is that thing your financial advisor keeps telling you

to make figure out how much you have to spend

and where you want to spend it and that's it

A constraint Is that feeling You get your wasteland after

a trip to the Happy have her bountiful buffet Just

can't eat another bite So put those concept together Budget

constraint on Well that's what this video is about A

budget that gets that feeling around its middle right It

just can't eat another bite Theo It's the last Friday

of the month and well you don't get your next

paycheck until Monday They're seventeen dollars in your bank account

You have thirty three in your pocket and fifty total

to your name But you've got a big date tonight

You can either take your date Teo Aunt May and

three the revenge Or you can probably just squeeze out

dinner for two at the PFC etchings And that is

at least as you only drink water and don't order

APS desserts But you can't go to the movies and

get dinner You have to pick one or the other

the concept of budget constraint attacks your love life Budget

constraints described the purchasing choices people have to make when

they have a limited income in economic circles The budget

constraint problem is usually posed as a choice between two

items This procedure allows economist to do their favorite activity

Make graphs Your brother is coming home after being in

a coma for three years He's not actually out of

the coma but his insurance ran out So you're going

to bring him home and let him keep a coma

in the living room Your family decides to celebrate the

homecoming anyway and they put you in charge of decorating

the house as if he notices you narrow your decoration

choices to two items you think are perfect for this

mccobb situation You can pick from balloons shaped like colostomy

bags and streamers that look like the chords of ivy

machines Well the colostomy balloons cost five dollars each and

the ivy streamers cost fifteen dollars each You have ninety

bucks to spend well There are all sorts of combinations

of purchases you can make You could buy eighteen balloons

and no streamers Are you Goodbye six streamers and no

balloon See they both total ninety bucks Or you could

buy a combo like two of the streamers and twelve

balloons or maybe four streamers and six balloons And this

is presuming you're going to spend all ninety dollars well

graph all the choices and the graph represents your decorating

budget constraint It outlines what's called your opportunity set I

either possible situations that you could choose from Well any

time you buy something when you spend an amount of

money you give up the chance to buy all the

other things you could have bought with that money for

the coma party Well each stream or you buy for

fifteen box means there are three five dollar balloons you

can't buy the opportunity cost for purchasing one decoration is

that you'd necessarily have less dote up Spend on the

other decorations It's the price for dealing with a budget

constraint situation another concept important to a budget constraints situation

Marginal utility Well this idea measures the added value you

get from acquiring one mohr of something like Take the

coma party situation You buy only balloons eighteen balloons and

no streamers What What's the added benefit of that eighteenth

balloon Does it make the party that much more festive

Well but then buying only seventeen balloons Well does Yoon

really no good You still can't afford a fifteen dollars

streamer Buying seventeen balloons instead of eighteen only saves you

five bucks But if you buy fifteen balloons instead of

eighteen well that allows you to purchase a streamer Well

if you want to handle the situation like an economist

you'd graft the total for festive nous of the party

you to sign each decoration a quantitative festive nous kwo

shen or index Are questions better there Yeah Q F

Q work Well you take into account that there's a

diminishing return for conflict with each added balloon Well the

first balloon in a room makes AH room much more

festive Going from zero balloons Toe one balloon takes a

situation from just sitting around with a guy in a

coma to a party However the eighteenth alone in a

room is hardly noticeable The previous seventeen balloons have already

done most of the work of creating that party atmosphere

Rock on baby well graphing the cost of each decoration

and the various festive quotients And economists can figure out

the optimal balloon to streamer ratio maximizing the total party

vibe But Keating within you know your budget constraint Well

by measuring the marginal utility of each item you can

choose among your opportunity set Which combination of balloons and

streamers gets you the most utility That is the combo

that best decorates the house for the money Not that

your brother is going to notice but we're just saying 00:04:26.349 --> [endTime] Hundred and tasty