Economics 1021A/B Lecture Notes - Indifference Curve, Normal Good, Inferior Good

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ECON 1021A/B Full Course Notes
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The budget line is the boundary between what a household can and cannot afford, given its income and the prices of goods. The point at which the budget line intersects the y-axis is the household"s real income in terms 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. A change in the price of one good changes the slope of the budget line. A change in income shifts the budget line but does not change its slope. A consumer"s preferences can be represented by indifference curves. The consumer is indifferent among all the combinations of goods that lie on an indifference curve. A consumer prefers any point above an indifference curve to any point on it and prefers any point on an indifference curve to any point below it.