The Budget Constraint In Action

 If the consumer spent his/ her entire income on good Y, expenditures on Y would exactly equals
income:
Py Y = M

Consequently, the maximum quantity of good Y is affordable is:

Y = M/Py
  Consider the following budget line:
100=1X+5Y
1. What is the maximum amount of X that can be consumed?
Maximum X is: X=1001=100 units
2. What is the maximum amount of Y that can be consumed?
Maximum Y is: Y=1005=20 units 
3. What is the rate at which the market trades goods X and Y?
 Market rate of substitution: -PXPY=-15

Changes in Income Shrink or Expand Opportunities

Changes in Prices
A Decrease in the Price of Good X
 Consumer equilibrium
 Shows the consumption bundle that is affordable and yields the greatest satisfaction to
the consumer.
 Consumption bundle where the rate a consumer choses (marginal rate of substitution) to
trade between goods X and Y equals the rate at which these goods are traded in the
market (market rate of substitution).
MRS=PXPY 
 Consumer equilibrium
 Consumption bundle that is affordable and yields the greatest satisfaction to the
consumer.
 Consumption bundle where the rate a consumer selects (marginal rate of substitution) to
trade between goods X and Y equals the rate at which these goods are traded in the
market (market rate of substitution).
MRS=PXPY