Harold is endowed with 6 pints of ale, 8 loaves of bread, and 10 pounds of cheese. He can consume these goods, or he can trade some or all of them on organized markets. Specifically, he can buy or sell ale at a price of p loaves per pint, and he can buy or sell cheese at a price of q loaves per pound. After trading as much as he likes in these markets, he will consume all of the goods that he possesses. Let a, b, and c be the quantities of ale, bread, and cheese that he consumes.
Harold's budget constraint can be found by recognizing that his bread consumption is the sum of three amounts: the amount contained in his endowment, the amount that he gets from the sale of ale, and the amount that he gets by selling cheese. (Either of these last two amounts could be negative.) Fill in the blanks below to find his budget constraint:
a) Harold's endowment of bread is loaves.
b) If Harold wishes to consume a pints of ale, he is able to sell pints of ale. The bread value of this ale is loaves.
c) If Harold wishes to consume c pounds of cheese, he is able to sell pounds of cheese. The bread value of this cheese is loaves.
d) Harold's actual consumption is the sum of these three amounts, so his budget constraint is:
