ACTG 2010 Chapter 9: ch 9
12 Jul 2016
School
Department
Course
Professor
Document Summary
Budget equation: expenditure = income, p1q1 + p2q2 = y. Q1 = y/p1 q2(p2/p1: real income: income expressed as a quantity of goods that a household can afford to buy. At the point where the budget line intersects the y-axis. =y/p1: relative price: the price of one good divided by the price of another good. Best: on the budget line, on the highest attainable indifference curve, marginal rate of substitution equals relative price. Price effect: the effect of the change in the price on the quantity of a good consumed: movement between best affordable choices on different indifference curves due to price effect mirrors the demand curve. Hours of the week divided between work and leisure: more leisure means less income, income-time budget line: relationship between leisure and income. If income effect is weaker than substitution effect the quantity of work hours increases as the wage rate rises.
