Utility and demand
Scarce: consumers have limited income and budget but they need a lot of things.
So how can the consumers make the best choice?
PPF: the relationship between quantity and price(how change in price influences
the quantity demanded)
Governments(policy makers) need to understand how the consumers spend
their income.. How they buy goods...
1. Consumption choices
Choices are influenced by mainly two factors:(1) consumption possibilities
(1) consumption possibilities are all the things you can afford
~ consumption possibilities are limited by the income
~ the limit of consumption possibilities can be described by budget line(very
similar to PPF)
The intersects with x-axis and y-axis are the largest amount you can afford
for 2 particular goods
Inside the budget line: things we can afford to buy.(affordable) Outside the budget line: things we can not afford to buy.(unaffordable)
On the budget line: maximize the utility
Assumption: consumers believe that more is always better. So if we want to
achieve maximum utility, we need to consume more.
Given the income and price of goods, we can write the equation of the budget
line. P1+P2=Income(spend all your income) the slope of the budget
If income changes, price of goods unchanged, the slope will remain the same.
But if the price of goods changes, the income unchanged, the slope may change.
Benefit or satisfaction from con