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 cheerios versus regular cheerios If your income increases you will buy normal cheerios instead of the off brand III Changes in relative prices Changes in relative prices pivot or rotate the budget constraint This happens if the price of one good stays the same and the price of another good changes
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