【文章內(nèi)容簡(jiǎn)介】 53 Chapter 1 Budget Constraints ? The Budget Line ? The slope indicates the rate at which the two goods can be substituted without changing the amount of money spent. 54 Chapter 1 Budget Constraints ? The Budget Line ? The vertical intercept (I/PC), illustrates the maximum amount of C that can be purchased with ine I. ? The horizontal intercept (I/PF), illustrates the maximum amount of F that can be purchased with ine I. 55 Chapter 1 Budget Constraints ? The Effects of Changes in Ine and Prices ? Ine Changes ?An increase in ine causes the budget line to shift outward, parallel to the original line (holding prices constant). ?A decrease in ine causes the budget line to shift inward, parallel to the original line (holding prices constant). 56 Chapter 1 Budget Constraints Food (units per week) Clothing (units per week) 80 120 160 40 20 40 60 80 0 A increase in ine shifts the budget line outward (I = $160) L2 (I = $80) L1 L3 (I = $40) A decrease in ine shifts the budget line inward 57 Chapter 1 Budget Constraints ? The Effects of Changes in Ine and Prices ? Price Changes ?If the price of one good increases, the budget line shifts inward, pivoting from the other good’s intercept. ?If the price of one good decreases, the budget line shifts outward, pivoting from the other good’s intercept. 58 Chapter 1 Budget Constraints Food (units per week) Clothing (units per week) 80 120 160 40 40 (PF = 1) L1 An increase in the price of food to $ changes the slope of the budget line and rotates it inward. L3 (PF = 2) (PF = 1/2) L2 A decrease in the price of food to $.50 changes the slope of the budget line and rotates it outward. 59 Chapter 1 Budget Constraints ? The Effects of Changes in Ine and Prices ? Price Changes ?If the two goods increase in price, but the ratio of the two prices is unchanged, the slope will not change. ?However, the budget line will shift inward to a point parallel to the original budget line. 60 Chapter 1 Budget Constraints ? The Effects of Changes in Ine and Prices ? Price Changes ?If the two goods decrease in price, but the ratio of the two prices is unchanged, the slope will not change. ?However, the budget line will shift outward to a point parallel to the original budget line. 61 Chapter 1 Consumer Choice ? Consumers choose a bination of goods that will maximize the satisfaction they can achieve, given the limited budget available to them. 62 Chapter 1 Consumer Choice ? The maximizing market basket must satisfy two conditions: 1) It must be located on the budget line. 2) Must give the consumer the most preferred bination of goods and services. 63 Chapter 1 Recall, the slope of an indifference curve is: Consumer Choice FCM RS????CFPPSlo pe??Further, the slope of the budget line is: 64 Chapter 1 Consumer Choice ? Therefore, it can be said that satisfaction is maximized where: CFPPMR S?65 Chapter 1 Consumer Choice ? It can be said that satisfaction is maximized when marginal rate of substitution (of F and C) is equal to the ratio of the prices (of F and C). 66 Chapter 1 Consumer Choice Food (units per week) Clothing (units per week) 40 80 20 20 30 40 0 U1 B Budget Line Pc = $2 Pf = $1 I = $80 Point B does not maximize satisfaction because the MRS ((10/10) = 1 is greater than the price ratio (1/2). 10C +10F 67 Chapter 1 Consumer Choice Budget Line U3 D Market basket D cannot be attained given the current budget constraint. Pc = $2 Pf = $1 I = $80 Food (units per week) Clothing (units per week) 40 80 20 20 30 40 0 68 Chapter 1 U2 Consumer Choice Pc = $2 Pf = $1 I = $80 Budget Line A 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 69 Chapter 1 Consumer Choice ? Consider two groups of consumers, each wishing to spend $10,000 on the styling and performance of cars. ? Each group has different preferences. Designing New Automobiles (II) 70 Chapter 1 Consumer Choice ? By finding the point of tangency between a group’s indifference curve and the budget constraint auto panies can design a production and marketing plan. Designing New Automobiles (II) 71 Chapter 1 Designing New Automobiles (II) Styling Performance $10,000 $10,000 $3,000 These consumers are willing to trade off a considerable amount of styling for some additional performance $7,000 72 Chapter 1 Designing New Automobiles (II) Styling $10,000 $10,000 $3,000 These consumers are willing to trade off a considerable amount of performance for some additional styling $7,000 Performance 73 Chapter 1 Consumer Choice ? Choosing between a nonmatching and matching grant to fund police expenditures Decision Making Public Policy 74 Chapter 1 Consumer Choice Nonmatching Grant Police Expenditures ($) Private Expenditures ($) O P Q U1 A Before Grant ? Budget line: PQ ?A: Preference maximizing market basket ?Expenditure ?OR: Private ?OS: Police R S 75 Chapter 1 V T U3 U1 After Grant ? Budget line: TV ?B: Preference maximizing market basket ?Expenditure ?OU: Private ?OZ: Police B U Z R Consumer Choice Nonmatching Grant P Police Expenditures ($) Private Expenditures ($) O S Q A 76 Chapter 1 P R U2 T U1 Consumer Choice Matching Grant Police ($) Private Expenditures ($) O Q S R Befo