Consumer_Theory - ECON 200 B Spring 2010 THE THEORY OF...

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ECON 200 B Spring 2010 THE THEORY OF CONSUMER CHOICE, Chapter 21 I. Basics: A. The concept of scarcity implies that consumers’ choices are constrained choices. This chapter focuses on how the consumer chooses the optimal consumption bundle between two goods. B. There are two key components that dictate what a consumer decisions: i. The consumers’ objective what the consumer wants ii. The consumers’ budget constraint what the consumer can afford C. We can use this concept to develop the demand curve and to understand how consumers’ respond to changes in prices of goods and wealth. II. The Budget Constraint: What Consumers Can Afford A. The budget constraint represents the limit on the consumption bundles that an individual can afford. a) The budget constraint depends on the prices of each goods as well as the consumers’ wealth. b) Movement along the budget constraint represents changes in consumption bundles only. c)
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This note was uploaded on 11/19/2010 for the course ECON ECON200 taught by Professor Ericka during the Spring '10 term at University of Washington.

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Consumer_Theory - ECON 200 B Spring 2010 THE THEORY OF...

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