ECO101H1 Lecture Notes - Lecture 11: Normal Good, Mira-Bhayandar Municipal Corporation, Budget Constraint
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Describe choices available to consumer (budget constraints) With two goods, x & y , the slope of the budget constraint reflects the opportunity cost of g in terms of s: 5. 00 x g = 2. 00 x g = 100. Budget constraint is written as pxx + pyy = m, where x, y are goods and px, py are prices, consumer budget/income is m. Slope of budget constraint reflects the opportunity cost of consuming another unit x in terms of foregone y. Consumers choose a random point on the budget constraint. On average, they will choose the midpoint: x* = m/px, y* = m/2py. The second foundation of consumer theory is the idea that consumers have well-defined preferences, and that they will choose their favourite combo of x, y, subject to their budget constraint. For any two bundles (x1, y1), (x2, y2), either: (x1, y1) is preferred to (x2, y2) or, (x2, y2) is preferred to (x1, y1) or.
