The consumer’s budget constraint
The indifference curve shows the willingness of a consumer to exchange one commodity
for another. The ability to consume particular combinations of goods and trade one off
against another will, however, depend upon the consumer’s disposable income and the
relative prices of those goods. The level of income and product prices therefore acts as a
constraint upon consumer choice.
The relationship between a consumer’s income, the prices of X and Y and the amount
of each good that can be purchased is given by the equation:
I = PXX + PYY