logging in or signing up Principles of Economics mrigankforu Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 70 Category: Education License: All Rights Reserved Like it (0) Dislike it (0) Added: December 21, 2010 This Presentation is Public Favorites: 0 Presentation Description No description available. Comments Posting comment... Premium member Presentation Transcript Principles of EconomicsBy-MRIGANKFMS,BHU : Principles of EconomicsBy-MRIGANKFMS,BHU Diminishing MRS : Diminishing MRS Food (units per week) Clothing (units per week) 2 3 4 5 1 2 4 6 8 10 12 14 16 A B D E G -6 1 1 1 1 -4 -2 -1 MRS = 6 MRS = 2 Budget Line : Budget Line Let F = amount of food purchased C = amount of clothing purchased Pf = Price of food Pc = price of clothing M = money income Then Budget Line : (M/PC) = 40 Budget Line Food (units per week) 40 60 80 = (M/PF) 20 10 20 30 0 Clothing (units per week) Pc = $2 Pf = $1 M = $80 Consumer Choice : Consumer Choice Food (units per week) Clothing (units per week) 40 80 20 20 30 40 0 Point B does not maximize satisfaction because the MRS (-10/10) = 1 is greater than the price ratio (1/2). Consumer Choice : Consumer Choice Market basket D cannot be attained given the current budget constraint. Food (units per week) Clothing (units per week) 40 80 20 20 30 40 0 Consumer Choice : Consumer Choice At market basket A the budget line and the indifference curve are tangent and no higher level of satisfaction can be attained. At A: MRS =Pf /Pc = .5 Food (units per week) Clothing (units per week) 40 80 20 20 30 40 0 Consumer Choice : Consumer Choice Food (units per week) Clothing (units per week) 40 80 20 20 30 40 0 Budget Line Pc = $2 Pf = $1 M = $80 D is not available. A offers less satisfaction than B. B is the optimum choice. Effect of a Price Change : Effect of a Price Change Food (units per month) Clothing (units per month) The price-consumption curve traces out the utility maximizing market basket for the various prices for food. Demand Curve : Demand Curve Food (units per month) Clothing (units per month) 20 6 U2 B 8 3 7 A U1 10 10 5 U3 D 40 Food (units per month) Price of Food Effects of Income Changes : Effects of Income Changes Food (units per month) Clothing (units per month) Pf = $1 Pc = $2 M = $10, $20, $30 Effects of Income Changes : Effects of Income Changes Food (units per month) Price of food An increase in income, from $10 to $20 to $30, with the prices fixed, shifts the consumer’s demand curve to the right. An Inferior Good : An Inferior Good Hamburger (units per month) Steak (units per month) Income and Substitution Effects : Income and Substitution Effects Food (units per month) O Clothing (units per month) Normal Good M=$60, Pf = $3, Pc = $3 Decreased Pf = $2 17 25.5 Total Effect = 18.5 Income Effect = 4.5 Substitution Effect = 14 Income and Substitution Effects : Income and Substitution Effects Food (units per month) O Clothing (units per month) Inferior Good M=$60, Pf = $3, Pc = $3 Decreased Pf = $2 17 25.5 Total Effect = 6.5 Income Effect = - 7.5 Substitution Effect = 14 Substitution Effect ＞ Income Effect. Income and Substitution Effects : Food (units per month) O Clothing (units per month) The income effect may theoretically be large enough to cause the demand curve for a good to slope upward. This is of little practical interest Income and Substitution Effects Giffen Good You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.
Principles of Economics mrigankforu Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 70 Category: Education License: All Rights Reserved Like it (0) Dislike it (0) Added: December 21, 2010 This Presentation is Public Favorites: 0 Presentation Description No description available. Comments Posting comment... Premium member Presentation Transcript Principles of EconomicsBy-MRIGANKFMS,BHU : Principles of EconomicsBy-MRIGANKFMS,BHU Diminishing MRS : Diminishing MRS Food (units per week) Clothing (units per week) 2 3 4 5 1 2 4 6 8 10 12 14 16 A B D E G -6 1 1 1 1 -4 -2 -1 MRS = 6 MRS = 2 Budget Line : Budget Line Let F = amount of food purchased C = amount of clothing purchased Pf = Price of food Pc = price of clothing M = money income Then Budget Line : (M/PC) = 40 Budget Line Food (units per week) 40 60 80 = (M/PF) 20 10 20 30 0 Clothing (units per week) Pc = $2 Pf = $1 M = $80 Consumer Choice : Consumer Choice Food (units per week) Clothing (units per week) 40 80 20 20 30 40 0 Point B does not maximize satisfaction because the MRS (-10/10) = 1 is greater than the price ratio (1/2). Consumer Choice : Consumer Choice Market basket D cannot be attained given the current budget constraint. Food (units per week) Clothing (units per week) 40 80 20 20 30 40 0 Consumer Choice : Consumer Choice At market basket A the budget line and the indifference curve are tangent and no higher level of satisfaction can be attained. At A: MRS =Pf /Pc = .5 Food (units per week) Clothing (units per week) 40 80 20 20 30 40 0 Consumer Choice : Consumer Choice Food (units per week) Clothing (units per week) 40 80 20 20 30 40 0 Budget Line Pc = $2 Pf = $1 M = $80 D is not available. A offers less satisfaction than B. B is the optimum choice. Effect of a Price Change : Effect of a Price Change Food (units per month) Clothing (units per month) The price-consumption curve traces out the utility maximizing market basket for the various prices for food. Demand Curve : Demand Curve Food (units per month) Clothing (units per month) 20 6 U2 B 8 3 7 A U1 10 10 5 U3 D 40 Food (units per month) Price of Food Effects of Income Changes : Effects of Income Changes Food (units per month) Clothing (units per month) Pf = $1 Pc = $2 M = $10, $20, $30 Effects of Income Changes : Effects of Income Changes Food (units per month) Price of food An increase in income, from $10 to $20 to $30, with the prices fixed, shifts the consumer’s demand curve to the right. An Inferior Good : An Inferior Good Hamburger (units per month) Steak (units per month) Income and Substitution Effects : Income and Substitution Effects Food (units per month) O Clothing (units per month) Normal Good M=$60, Pf = $3, Pc = $3 Decreased Pf = $2 17 25.5 Total Effect = 18.5 Income Effect = 4.5 Substitution Effect = 14 Income and Substitution Effects : Income and Substitution Effects Food (units per month) O Clothing (units per month) Inferior Good M=$60, Pf = $3, Pc = $3 Decreased Pf = $2 17 25.5 Total Effect = 6.5 Income Effect = - 7.5 Substitution Effect = 14 Substitution Effect ＞ Income Effect. Income and Substitution Effects : Food (units per month) O Clothing (units per month) The income effect may theoretically be large enough to cause the demand curve for a good to slope upward. This is of little practical interest Income and Substitution Effects Giffen Good