ECON 2000 Chapter 9: Chapter 9 ECON 2000.docx
23 Apr 2012
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Real income income expressed as a quantity of goods that a household can afford to buy. Relative price price of one good divided by the price of another. Budget line shows limits to consumption given income and prices. Budget equation: qp = y/pp pm/pp * qm (pop on the y axis and movies on the x axis ) Intercepts measure real income in movies (x) and pop (y) A decrease in pm = flatter budget line; fixed pop intercept. A decrease in pp = steeper budget lines; fixed movie intercept. A decrease in y = leftward parallel shift of budget line. Indifference curves join combinations of goods that give you equal satisfaction. Assume more of any good is preferred to less. Generally downward sloping and bowed toward the origin (convex) Never intersect farther from origin = higher levels of satisfaction trying to get to a higher up indifference curve on the indifference curve map.
