Textbook Notes (363,051)
Canada (158,169)
Economics (800)
ECON 2310 (47)
Chapter 5

Chapter 5 Intermediate Micro Notes

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University of Guelph
ECON 2310
Johanna Goertz

Economics Chapter 5 Constraints ChoicesDemand51 Affordable Consumption bundles Need to decide what is affordablewhat isnt by focusing on consumption bundles rather than individual productsIncome PricesThe Budget LineM Income Money a consumer receives during the year during some fixed period of time hour day year etc Cost of consumption bundleorIncomeBudget Constraint Identifies all of the consumption bundles a consumer can afford over some period of timePsSPbB orM Income Affordable consumption bundles either exhaust the consumers income PsSPbBM or do notBudget Line shows all the consumption bundles that just exhaust a consumers incomeBMPs The slope isPsPb Pb Pbx SChanges in incomeprices Changes in incomeprices move the budget line altering the set of bundles available Changing prices AND income by the same proportion has no effect on the budget line A change in the price of a good rotates the budget line Outwards for a decrease in price inwards for increase in price Line pivots at intercept unless both goods on YX axis have a price changeOther Limits on Consumption When demand for a good exceeds supply at the prevailing price governments or suppliers may limit the amount each consumer can buyRationed When governments or suppliers put limits on the amount that each consumer can purchase There will be kinked demand where the one good is rationed 52 Consumer Choice According to choice principle a consumer selects highestranked alternative amon
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