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06A Appendix
Consumer Behavior
McGrawHill/Irwin Copyright © 2012 by The McGrawHill Companies, Inc. All rights reserved.
The Budget Line: What is Attainable
• Combinations of two products a consumer can purchase with their money income
• Slope is the ratio of the price of B to the price of A
• Location varies with income changes • Location varies with price of products
LO6 6App-2
The Budget Line
Units of A (Price = $1.50)
8
6
Units of B (Price = $1)
0
3
Total Expenditure
$12
12
12
Income = $12 10 PA = $1.50
8 (Unattainable)
6
4 6 12 4 2 9 12
0 12 12 2
Income = $12
(Attainable) PB = $1
0 2 4 6 8 10 12 Quantity of B
LO6 6App-3
Indifference Curves: What is Preferred
• Combinations of two products that yield the same amount of total utility
• The consumer is indifferent as to which combination to purchase
• Characteristics •Downsloping •Convex to the origin •Reflects the MRS
LO6 6App-4
Indifference Curves
12 j
10
8
j 12 2 6 k l
k 6 4 4 m
l 4 6 2 I
m 3 8 0 2 4 6 8 10 12 Quantity of B
LO6 6App-5
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