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....
View Full Document
- Spring '07
- Producer and Consumer Choice, Marginal Rule Marginal