ECON 1110 Lecture Notes - Lecture 7: Opportunity Cost, Budget Constraint, Ceteris Paribus

• School: Cornell University
• Department: Economics
• Course: ECON 1110
• Professor: Stephanie Thomas

Document Summary

Lecture #7 household behavior and consumer choice september. Factors of production land, labor, capital. Determinants of household demand income available to household, household"s amount of accumulated wealth, household"s taste and preferences, household"s expectations about future income, wealth, and prices. Graph: income increases, the entire frontier will shift outward without the slope hanging because you can purchase more of both x and. Income and substitution effect in output market: income effect. Decline in price of product x, ceteris paribus, will make the household better off. If the household buys the same amount of goods and services after the price decrease, it will have income left over. That extra income can be spent in other ways since the household is within its budget constraint: substitution effect opportunity cost of good decreases so household can buy more. Decline in price of product x makes it relatively cheaper, making it more attractive relative to potential substitutes.