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

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pearswan378
9 Jan 2013
School
Western University
Department
Economics
Course
Economics 1021A/B
Professor
Prof

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ECON 1021A/B Full Course Notes
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ECON 1021A/B Full Course Notes
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Document Summary

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.

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Related Questions

D) the consumer remains indifferent among the different combinations of goods. E) the consumer prefers the combinations of goods that are farther rightward along the indifference curve. 26. As a consumer moves rightward along an indifference curve, A) the relative price of the good measured on the x-axis falls. B) the relative price of the good measured on the y-axis falls. C) the income required to buy the combinations of the goods increases.

11) Which one of the following is true at the best affordable choice of a consumer? A) Marginal rate of substitution is less than the relative price of the good measured on the r-axis. B) Other consumption points along the consumer's budget line lie on higher indifference curves. C) Marginal rate of substitution exceeds the slope of the budget line. D) The consumption choice is outside the budget line. E) All income is spent.

24) Which one of the following is true at the best affordable choice of a consumer? A) Marginal rate of substitution exceeds the slope of the budget line. B) Marginal rate of substitution is less than the relative price of the good measured on the X-axis. C) All income is spent. D) The consumption choice is outside the budget line. E) Other consumption points along the consumer's budget line lie on higher indifference curves.