MCS 1000 Chapter Notes - Chapter 9: Indifference Curve, Divisor, Inferior Good

• School: University of Guelph
• Department: Marketing and Consumer Studies
• Course: MCS 1000
• Professor: Sergio Meza

Document Summary

Choices are limited by income and by prices. A households budget line describes the limits to its consumption choices. Some goods called divisible goods can be bought in any quantity desired (gasoline and electricity) Lisa"s (cid:271)udget li(cid:374)e is a (cid:272)o(cid:374)st(cid:396)ai(cid:374)t o(cid:374) he(cid:396) (cid:272)hoi(cid:272)es. It marks the boundary between what is affordable and what is unaffordable. She can afford any point on the line and inside it. A household"s (cid:396)eal i(cid:374)(cid:272)o(cid:373)e is its i(cid:374)(cid:272)o(cid:373)e e(cid:454)p(cid:396)essed as a (cid:395)ua(cid:374)tit(cid:455) of goods that the household can afford to buy. A relative price is the price of one good divided by the price of another good. The point at which the budget line intersects the y-a(cid:454)is is the household"s (cid:396)eal i(cid:374)(cid:272)o(cid:373)e i(cid:374) te(cid:396)(cid:373)s of the good measured on that axis. The magnitude of the slope of the budget line is the relative price of the good measured on the x-axis in terms of the good measured on the y-axis.