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?
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)
of X bought
+ Price of Y
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