ECON 2300 Study Guide - Partial Derivative, Quasi, Supplemental Nutrition Assistance Program
Document Summary
Notation: x1, x2 = 2 goods, p1, p2 = corresponding. Slope = rise/run = x2/ x1 = dx2/ x1. Slope of bc = rate at which you can trade x2 for x1 in market: opportunity cost. , how much x2 you have to give up for 1 more unit of x1. = numerator (p1 = 1: p2 and m are in terms of p1. Effect of p1 and p2 on budget constraint (bc) m , bc shifts out in parallel fashion. P1 and p2 go by same %, bc shifts out/up in parallel fashion. P1 and p2 go by same %, bc shifts in/down in parallel fashion. P1 , p2 and m go by same %, bc remains unchanged. Some policy instruments and their effects on bc: taxes/subsidies, quantity based: p+t or p-t, value/ad valorem: p(1+t)/p(1-t, lump-sum/fixed-sum, add if tax, minus if subsidy. Quantity or value tax: price , bc rotated inward, price , bc rotated outward.
