Unformatted text preview: bundle” • Budget line- Shows the combination of goods that the consumer can purchase given budget constraint Optimal Marginal Rule Marginal Utility of x / dollar = Marginal Utility of y / dollar Why the Demand Curve is Downward Sloping • Substitution Effect- That results from a price change- the change in the quantity consumed of that good as consumer substitutes relatively cheaper good for the goods that became relatively more expensive • Income Effect- The results from a price change- change in the quantity consumed that results in an increase in the consumer’s purchasing power (a price increase/ decrease in effect make a consumer poorer / richer). Income effect is more pronounced for more expensive (larger share of budget) items....
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This note was uploaded on 03/30/2008 for the course AAEC 1006 taught by Professor Mjellerbrock during the Spring '07 term at Virginia Tech.
- Spring '07