ECON 2310 Chapter Notes - Chapter 5: Indifference Curve
17 Dec 2011
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Need to decide what is affordable & what isn"t by focusing on consumption bundles rather than individual products. Income, prices, & the budget line: (m) income: money a consumer receives during the year during some fixed period of time (hour, day, year etc. ) Budget constraint: identifies all of the consumption bundles a consumer can afford over some period of time. Cost of consumption bundle < or = income. Pss + pbb < or = m (income) Affordable consumption bundles either exhaust the consumers income (pss + pbb = m) or do not. Budget line: shows all the consumption bundles that just exhaust a consumer"s income. Changes in income & prices move the budget line altering the set of bundles available. Changing prices and income by the same proportion has no effect on the budget line. A change in the price of a good rotates the budget line. Outwards for a decrease in price, inwards for increase in price.
