CAS EC 101 Lecture Notes - Lecture 16: Budget Constraint, Consumer Choice, Normal Good

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11 Oct 2018

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CAS EC 101 Lecture Notes - Lecture 15: Giffen Good, Budget Constraint, Demand Curve

CAS EC 101 Lecture Notes - Lecture 16: Budget Constraint, Consumer Choice, Normal Good

CAS EC 101 Lecture Notes - Lecture 17: Gatorade, Budget Constraint, Indifference Curve

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Ec 101 lecture 14 - substitution and income effect. The best combination of goods for a consumer is the point where the budget constraint is tangent to the indifference curve. The effect of price changes on the budget constraint and the optimal consumption point: If the price of good y changes, then the y-intercept changes but the x-intercept stays the same. If the price of good x changes, then the x-intercept changes but the y-intercept stays the same. The slope of the budget constraint will change based on the change in price. The change in consumer optimum follows the change in budget constraint: if the budget constraint increases, then the consumer optimum also increases. The substitution effect- the heart of consumer theory. If the price of a good goes up, then you tend to buy less of that good and more of other goods.

Related Questions

Show the consumer budget constraint, indifference curves and optimal consumption choice for wine and cheese if the price of wine is $3 per glass, the price of cheese is $6 per pound and when income of the person is $3000. What is the marginal rate of substitution at this optimum point?

violetplatypus238

budget line

marginal utility

complete property of preferences

market demand

consumption bundle

substitution effect

Giffen good

total effect

income effect

transitive property of preferences

indifference curves

utility

the marginal rate of substitution

utility function

1.	_____	The satisfaction or benefit that consumers receive from consuming goods or services.
2.	________________ _	A particular combination of specific quantities of goods or services
3.	________________ _	Consumers can rank all conceivable bundles of goods or services
4.	_____	If A is preferred to B, and B is preferred to C, then A is always preferred to C.
5.	_____	Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services.
6.	_____	A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility.
7.	_____	The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed.
8.	_____	The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant.
9.	_____	The line showing all bundles of goods that can be purchased at given prices if the entire income is spent.
10.	_____	The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes.
11.	_____	The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes.
12.	________________ _	The sum of the substitution and income effects.
13.	_____	A good for which quantity demanded varies directly with price, causing an upward sloping demand curve.
14.	_____	A list of prices and the corresponding quantity consumers are willing and able to purchase at each price.

blushwildebeest943

Consider an individual making choices over two goods, x and y with prices px and py, and who has income:

Suppose that, as a result of changes in the individual's economic circumstances, the budget line rotates outward, with the vertical (good y) intercept remaining unchanged but the horizontal (good x) intercept shifting to the right. Explain how this could have happened if the price of good x did not change?

If the individual's utility function is u(x; y) = x 2 + 4y 2 , are these preferences convex? Are they monotonic? Explain.

coffeegnu443

CAS EC 101 Lecture Notes - Lecture 16: Budget Constraint, Consumer Choice, Normal Good

CAS EC 101 Lecture Notes - Lecture 15: Giffen Good, Budget Constraint, Demand Curve

CAS EC 101 Lecture Notes - Lecture 16: Budget Constraint, Consumer Choice, Normal Good

CAS EC 101 Lecture Notes - Lecture 17: Gatorade, Budget Constraint, Indifference Curve

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