Changes in Income and Relative Prices

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Changes in Income and Relative Prices

In this lecture we learned about changes in income and relative prices and how these effect individual buyers.


Lecture number:
7
Pages:
2
Type:
Lecture Note
School:
University of Oklahoma
Course:
Econ 1123 - Princ. of Econ-Micro
Edition:
1

Unformatted text preview:

ECON 1123 1st Edition Lecture 7 Outline From Previous Lecture (Lecture 6) I. Consumer Choice: The Essence of the Problem II. Subjective Consumer Preferences: Indifference Sets III. Objective Consumer Circumstances: The Budget Constraint Outline Lecture 7 I. Reconciling Subjective Preferences and objective circumstances: Individual Utility maximization II. Changes in Income III. Changes in relative prices Lecture 7 Notes I. Reconciling Subjective Preferences and objective circumstances: Individual Utility maximization This will be reconciled at the equilibrium point where the indifference curve becomes tangent to the budget constraint Technical notes: -Slope of the indifference curve is the marginal rate of substitution (MRS) change in good A/change in good B -Slope of the budget constraint is called the relative price ration. Price of Good A/ Price of Good B -Point of tangency MRS (change in good A/ change in good b)= relative price ratio=(price of good A/ Price of good B) II. Changes in Income Changes in income will cause parallel shifts in the budget constraint. It will shift to the right if the income increases and to the left if the income decreases. -Increases in income increase goods demanded -Normal goods when income increases the quantities demanded of normal (superior) goods increases. (As opposed to inferior goods) Example: off-brand These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.



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