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Chapter 4

Microeconomics Chapter 4

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Department
Economics
Course
ECON-UA 1
Professor
Jennifer Berg
Semester
Summer

Description
Microeconomics 200 - Thursday, July 25th notes Luxury goods - very elastic * decrease in price will increase revenue * increase in price will decrease revenue Chapter 6 (the budget constraint) Firms - profit maximizers (all their actions are geared towards making a profit) - What to buy and how much of it to buy? - What people want? - How society decides what to make? Consumer Choice Constraints for a consumer - limited purchasing power, or income. Atwo good model (buy one thing or the other) .. Aconsumer is choosing some combination of two goods. -> this is a simplified model, can be converted to multiple goods. Budget Constraint -All the combinations of goods that are affordable. (the curve) Budget Line -All the combination of goods that exhaust the consumer’s income. -> consumer spends all his money. (points on the curve) When exhausting all budget on a combination of goods, we get a point on the budget line. Budget line for Max: 10 x Movies + 20 x Concerts = $100 (example) Example of budget line: Px + Py = Income (formula) Price of X bought + Price of Y bought = Income * Points above the line are not possible; higher than budget (income). * Points below the line are possible, but are not chosen b/c they don’t use up all budget (income) * Points on line are efficient, demonstrating all combinations of goods that exhaust
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