ECON 1050 Lecture : Consumer Choice

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5 Mar 2012

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Predicting the effects of wage, prices, and income on work-leisure choices. Budget line: describes the limits to household consumption choices. P = price, q= quantity, y = income. Real income: y/p1 is consumer"s real income in terms of good 1. Price affordable quantity of that good: x-axis price causes an inward rotation of the budget line and slope, y-axis price causes an inward rotation of the budget line and slope. Income changes income changes cause parallel shifts of the budget line: slope does not change because relative price remains constant. Preferences and indifference curves indifference curve: shows combinations of goods that a consumer feels are of equal value. Preference map: series of indifference curves to get to a higher indifference curve: income must increase (budget line must shift rightward: price drop must occur (budget line must rotate outwards) Marginal rate of substitution (mrs): measures the rate at which a person is.

Related Questions

32) Which of the following is not relevant when calculating the budget line? A) income B) the price of good Y C) the relative price of good X in terms of good Y D) preferences E) the price of good X

34. Jay has an income of $10 to buy peanuts and popcorn. The price of peanuts is $1 a bag and the price of popcorn is $2 a bag. He chooses to consume 5 bags of peanuts and 2 bags of popcorn. What can we say about this consumption choice? A) It is not the best affordable choice. He should consume more peanuts, more popcorn, or more of both. B) It is the best affordable choice, and his marginal rate of substitution equals the slope of the budget line. C) The consumption choice is on the budget line. D) The consumption choice is outside the budget line. E) both B and C

23) Good X is measured on the horizontal axis and good Y is measured on the vertical axis. The marginal rate of substitution is A) the relative price of good X in terms of good Y. B) the relative price of good Y in terms of good X. C) the rate at which a consumer will give up good Y to obtain an additional unit of good X while remaining indifferent. D) the rate at which a consumer will give up good X to obtain an additional unit of good Y while remaining indifferent. E) equal to the magnitude of the slope of the budget line.

ECON 1050 Lecture : Consumer Choice

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