HON 1302 Lecture Notes - Lecture 5: Budget Constraint, Marginal Revenue, Demand Curve
Document Summary
Chapter 6 household behavior and consumer choice. A limitation on the amounts of goods and services can purchase based upon a person"s income. The budget line on a graph represents all the combinations of goods a person can person on their given budget. Whether one"s constraint is high or low, he/she must learn to live with the budget constraint. The solid blue line represents the original combinations of goods that the consumer can purchase on their budget. The dashed line represents the combinations of goods that the consumer can afford on their budget when the price of product b decreases. People"s preferences, combined with their budget, determines what they actually buy. Marginal utility = the utility derived by consuming or using an additional product. The more you consume a product, the less utility it delivers: ex. If you have one ice cream cone it"s very satisfying.
