微观经济学PPT04.pptVIP

Chapter 5 Constraints, Choices, and Demand Main Topics Affordable consumption bundles Consumer choice Utility maximization Prices and demand Income and demand How economists determine a consumer’s preferences The Consumer’s Budget Constraint Consumer can afford to purchase a bundle if its cost is less than her income for that period: More formally, the bundle is affordable if: And exhausts the consumer’s income if costs strictly equal income (M) This is the consumer’s budget constraint Figure 5.1: The Budget Constraint Equation of the budget line: Bundles in the shaded area are affordable but do not exhaust income Bundles on the budget line exhaust income Changes in Income and Prices Change in income alters intercepts of the budget line but does not change its slope Reduction in income shifts budget line in Increase in income shifts budget line out Change in price of a good pivots the budget line at the intercept of the good with the unchanged price Outward for a price decrease Inward for a price increase Figure 5.2: Effects of Changes in Income on the Budget Line Figure 5.3: Effects of a Change in the Price of Soup Figure 5.3: Effects of a Change in the Price of Soup Properties of Budget Lines Budget line is the boundary that separates affordable bundles from all others Slope of budget line = -PX/PY X-intercept is M/PX; Y-intercept is M/PY Change in income shifts the line without changing its slope Change in the price of a good rotates the line Changing prices and income by the same proportion has no effect on the budget line Consumer Choice Choice principle suggests a consumer will choose the highest-ranked available option Graphically, this means: A bundle on the budget line, not below it A bundle on the highest indifference curve that touches the budget line The No-Overlap Rule The area above the indifference curve that runs through the consumer’s best bundle does not overlap with the area below the budget line. The area above the indifference curve th