ECON 112 Lecture Notes - Lecture 13: Budget Constraint, Indifference Curve, Constrained Optimization
Document Summary
The limit on the consumption bundles that a consumer can afford. Billy divides his income between two goods: shirts and tomatoes. The combination of shirts and tomatoes he purchases cannot cost more than. A particular combination of goods a person consumes. Billy divides his income between shirts and tomatoes. His consumption bundle could be, for example, 40 shirts & 300 tomatoes. It is the opportunity cost and the marginal rate of transformation (mrt) The slope of the budget constraint equals the relative price of the good on the x axis. A fall in income shifts the budget constraint down. An increase in the price of one good pivots the budget constraint inward. Utility: the satisfaction derived from the consumption of goods and services. Indifference curves: show consumption bundles that give the consumer the same level of satisfaction. At every point on an indifference curve, the consumer derives the same utility.
