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Consumer Choice

Consumer Choice - Chapter 5 Consumer Choice You are...

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Chapter 5: Consumer Choice You are constantly making economic decisions and you are faced with constraints such as too little income. Consumer Theory is the theory of individual decision-making. There are two facts of economic life. We must pay for goods and services bought and there are limited funds to spend A consumer’s budget constraint identifies combinations of goods and services the consumer can afford with a limited budget Budget line Graphical representation of a budget constraint Slope of the budget line trade-off between one good and another and the amount of one good that must be sacrificed to buy more of another good Changes in income shift the budget line (increase shifts right, decrease shifts left) Changes in price rotate the budget line, meaning the slope changes and one of the intercepts change
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Rational Preferences o Any two alternatives can be compared when one is preferred or the two are valued equally o
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