ECON 1200 Chapter Notes - Chapter 21: Demand Curve, Indifference Curve, Budget Constraint
Document Summary
The budget constraint: what the consumer can afford. People consume less than they desire b/c spending is limited by income. Budget constraint: limit on consumption bundles that consumer can afford. Slope of budget constraint measures rate @ which consumer can trade 1 good for another & equals relative price of goods. Preferences: what the consumer wants: consumers" choices depend both on budget constraint & preferences. Four properties of indifference curves: higher indifference curves preferred over lower indifference curves. People usually prefer to consume more goods than less goods: indifference curves downward sloping, indifference curves don"t cross, indifference curves bowed inward. People more willing to trade away goods that have in abundance & less. How changes in income affect the consumer"s choices: increase in income shifts budget constraint outwards & new optimum point occurs (slope remains same) How changes in prices affect the consumer"s choices: change in price changes slope of budget constraint.