00:01
So here we are talking about budget constraints, right? and we know that this budget constraint is looking something like this.
00:07
So this is the amount of x you can afford.
00:09
This is the amount of y you can afford.
00:11
And a budget constraint tends to look something like this.
00:14
So my argument here is that d is the wrong one, right? so a is the relative price.
00:20
Yes, this is true, right? because the prices affect how much you can buy, right? that's what a budget constraint is showing you.
00:33
It's showing you how much that you can buy, and the prices are what determine that, right? so if you are here and you are thinking about moving down to here, right, what you're doing as you move along the budget constraint is you're giving up some of one good to see how much of the other good you can afford.
00:51
So you're looking at how much one good costs in terms of the other goods.
00:55
So that is correct.
00:56
B, it is the rate of trade -off, and that's basically the same as a, right? it is showing you as you move, right, the sort of opportunity cost, right, in terms of the other.
01:15
As you move up and down the budget constraint, you're saying, well, how much of one can i get? how much can the other can i get? well, that's determined by prices, right? so the rate at which you can trade one good for the other is determined by the relative price.
01:29
If the prices are one for one, you can trade one for one.
01:31
But if one's twice as expensive, you need to trade one for two...