ECON-UA 2 Lecture Notes - Lecture 10: Demand Curve, Inferior Good, Normal Good
Document Summary
Consumer will choose the point on the budget line. Where marginal utility per dollar is the same for both goods: mux/px=muy/py. There is no further gain from reallocating expenditures in either direction. A new quantity demanded for each good. Decrease in the price of one good. Quantity of a good a consumer demands at each different price. As the price of a good falls, the consumer substitutes that good in place of other goods whose prices have not changed. Arises from a change in the relative price of a good. It moves quantity demanded in the opposite direction to the price change. As the price of a good decreases, the consumer"s purchasing power increases. Causing a change in quantity demanded for the good. Arises from a change in purchasing power over both goods. The substitution effect is always negative; prices and quantities move in opposite directions. Quantity demanded - moves in the opposite direction of the price.