Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 7 Topics for Further Study
Chapter 21 of 36 The Theory of Consumer Choice
Section 3 of 26
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Figure 1 - The Consumer's Budget Constraint
The budget constraint model shows the various bundles of goods the consumer can buy for a given income.
In this model the consumer buys bundles of pizza and Pepsi.
The table and graph show what the consumer can afford if his income is $1,000, when
· the price of pizza is $10
· the price of Pepsi is $2
The consumer can buy 100 pizzas and 0 pints of Pepsi, or 0 pizzas and 500 pints of Pepsi, or any combination between.
…
Most people would like to increase the quantity and quality of the goods they consume.
People consume less than they desire because their spending is limited by their income.
In Figure 1, we consider the decision facing a consumer who buys two goods, pizza and Pepsi.
This model assumes there are only two goods simplifies the model but doesn’t alter the essential consumer choice insights.
…
First, we consider how the consumer's income constrains the amount he spends on pizza and Pepsi.
Here, the consumer
· has an income of $1,000 per month
· spends his entire income on pizza and Pepsi
· the price of a pizza is $10
· the price of a pint of Pepsi is $2
…
The table in Figure 1 shows some of the combinations (bundles) of pizza and Pepsi the consumer can buy in a month.
The first row shows he can buy 100 pizzas and zero pints of Pepsi.
The second row shows he can buy 90 pizzas and 50 pints of Pepsi.
The last row shows he can buy zero pizzas and 500 pints of Pepsi.
Each consumption bundle in the table costs $1,000.
…
The graph in Figure 1 illustrates the consumption bundles the consumer can choose
· the vertical axis shows the number of pints of Pepsi
· the horizontal axis shows the number of pizzas
On the graph three points are marked
· point A, the consumer buys no Pepsi and buys 100 pizzas
· point B, the consumer buys 500 pints of Pepsi and buys no pizza
· point C, the consumer buys 250 pints of Pepsi and buys 50 pizzas
Point C, exactly at the middle of the line, is the point at which the consumer spends an equal $500 amount on pizza and Pepsi.
…
The line AB is called the consumer’s budget constraint.
It shows the possible consumption bundles the consumer faces and can afford.
The slope of the budget constraint measures the rate at which the consumer can trade one good for the other.
From point A to point B
· the vertical distance is 500 pints
· the horizontal distance is 100 pizzas
· so, the slope is 5 pints of Pepsi per 1 pizza
…
A pizza costs 5 times as much as a pint of Pepsi, $10 compared to $2
· the opportunity cost of a pizza is 5 pints of Pepsi
· the consumer must give up 1 pizza for an additional 5 pints of Pepsi
· the consumer must give up 5 pints of Pepsi for an additional pizza
So, the budget constraint slope is 5.
It shows the trade-off the market poses for the consumer, 1 pizza for 5 pints of Pepsi.
… …
In the U.S. what is the median household net income after income taxes,
and what is the median household amount spent on consumer goods including food?
Grok:
Median post-tax (disposable) household income: ≈ $75,000 (2023 Census estimate)
Median total household expenditures: ≈ $66,900 (2023 Bureau of Labor Statistics estimate)
…
What is the median dollar amount U.S. households have invested in the stock market including indirectly through 401K plans?
Grok:
The median U.S. household investment in the stock market including direct holdings and indirect exposure through retirement accounts like 401(k)s, IRAs, and mutual funds stands at approximately $55,000 as of the most recent comprehensive data from the Federal Reserve's 2022 Survey of Consumer Finances.
About 58% of U.S. families held stocks directly or indirectly in 2022 (up from 53% in 2019).
For households with any stock holdings, the conditional median value reached around $52,000–$60,000 in equities, adjusted for typical 60–80% equity allocation in retirement portfolios.
The overall median across all households (including the ~42% with zero exposure) is effectively $0, but the question focuses on typical invested amounts among participants.
The key here is the difference between median and average (mean)—a classic case of how extreme wealth concentration distorts the picture (see Table 251120 attached).
… …
net household income after income taxe
shotokuzeigo no jun setai shotoku
所得税後の純世帯所得

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