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Canada (161,798)
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ECON 212 (8)
Chapter 4

Chapter 4

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ECON 212
Arthur E Stewart

Chapter 4: Consumer Choice The Budget Constraint  The budget constraint defines the set on bundles that a consumer can purchase with a limited amount of income  P x +xP y ≤yI  Price of good 1 = P xnd price of good 2 = P ayd income is fixed at I  The budget line is the set of the bundles a consumer can buy if they spend all their available income in the two goods  I = P x x P y y  When drawing the budget line, y-int = I/P ,yx-int = I/Px, and slope = Px/Py  The slope tells us how many units of the good on the vertical axis a consumer must give up to get one unit of the good on the horizontal axis How Does a Change in Income Affect the Budget Line?  An increase in income shifts the budget line out to the right, expanding the consumers purchasing ability (can buy more)  A decrease in income shifts the bud
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