ECON 10010 Lecture Notes - Lecture 12: Inferior Good, Situation Two, Opportunity Cost
Document Summary
In this class, we will learn how to put these two curve together to. Gure out what choice will actually be made. The budget constraint curve is the tangent of the indi erence curve. We could produce at , but we"d be happier on. If the indi erence curve intercepts budget more than once, there is a better one. At the consumer"s choice, the slope of the indi erence curve equals: the slope of the budget constraint. What consumers respond to: change in income, change in price. Steps for analyzing these types of changes: draw the initial set up/choice, draw the new budget constraint, draw the new indi erence curve, mark new consumer"s choice. Situation 1: both goods are normal, income increases. Situation 2: socks are an inferior good, popcorn is normal, income decreases. Situation 3: popcorn is inferior, socks are normal, income decreases. Situation 4: both popcorn and socks are normal goods, price decrease for popcorn.
