As a result of our limited incomes and insatiable wants, it is in our self-interest to economize or pick and choose goods and services that maximize our satisfaction.
How to manage limited income?
- We all have limited resources (even the super-rich)
- Earnings, interest, rent, profits, and even government benefits and family
- All of us have endless wants that never cease Luxuries, new clothes, jewels, hairstyles, various cuisines, etc.
- But because we have a finite amount of money and insatiable demands, it is in our best interests to be frugal and choose items and services that will give us the most satisfaction given our circumstances.
- People experience an economizing issue since their demands surpass their incomes. What to purchase and what to pass up.
- The many combinations of what we can purchase are displayed on a budget line (budget restriction).
- Constraints on a straight line budget entail continual opportunity costs for both products.
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