ABSTRACT
A consumer’s choice behavior arises from the interaction between what they can afford and their preferences over different goods. To study this in greater detail, the authors introduce the idea of a budget in this chapter, the combination of all goods and services that a consumer can afford. The commodity space refers to the combination of goods and services that a consumer can potentially purchase. Since most of the economic insights can be derived by confining attention to the case of two goods, people assume that there are only two commodities that a consumer can buy. It is convenient to assume that these goods are divisible: they can be purchased in any amount, not just in whole units. The price of the good on the horizontal axis is always in the numerator of this ratio.
