帕金经济学第9版课件Ch09-9e-lecture.pptVIP

Consumption Possibilities Household consumption choices are constrained by its income and the prices of the goods and services available. The budget line describes the limits to the household’s consumption choices. Consumption Possibilities Figure 9.1 shows Lisa’s budget line. Divisible goods can be bought in any quantity along the budget line (gasoline, for example). Indivisible goods must be bought in whole units at the points marked (movies, for example). Consumption Possibilities The budget line is a constraint on Lisa’s choices. Lisa can afford any point on her budget line or inside it. Lisa cannot afford any point outside her budget line. Consumption Possibilities The Budget Equation We can describe the budget line by using a budget equation. The budget equation states that Expenditure = Income Call the price of soda PS, the quantity of soda QS, the price of a movie PM, the quantity of movies QM, and income Y. Lisa’s budget equation is: PSQS + PMQM = Y. Consumption Possibilities PSQS + PMQM = Y Divide both sides of this equation by PS, to give: QS + (PM/PS)QM = Y/PS Then subtract (PM/PS)QM from both sides of the equation to give: QS = Y/PS – (PM/PS)QM Y/PS is Lisa’s real income in terms of soda. PM/PS is the relative price of a movie in terms of soda. Consumption Possibilities A household’s real income is the income expressed as a quantity of goods the household can afford to buy. Lisa’s real income in terms of soda is the point on her budget line where it meets the y-axis. A relative price is the price of one good divided by the price of another good. Relative price is the magnitude of the slope of the budget line. The relative price shows how many cases of soda must be forgone to see an additional movie. Consumption Possibilities A Change in Prices A rise in the price of the good on the x-axis decreases the affordable quantity of that good and increases the slope of the budget line. Figure 9.2(a) shows the rotation of a budget line after a change in the r