Chapter 5

Chapter 5 - Microeconomics Chapter 5 Notes Consumer Choice...

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Microeconomics Chapter 5 Notes Consumer Choice is constantly having to make economic decisions due to constraints, such as income, wealth and time Consumer Theory is the theory of individual decision making A consumer’s budget constraint identifies combinations of goods and services the consumer can afford with a limited budget The Budget Line is a graphical representation of a budget constraint o The slope of the budget line is the trade-off between one good and another. The amount of one good that must be sacrificed in order to buy more of another good o Changes in the Budget Line Changes in income shift the budget line (increase/right or decrease/left). Does not affect the slope of the budget line. Changes in price rotate the budget line, the slope changes and one of the intercepts changes Preferences o Any two alternatives can be compared, either one is preferred or the two are valued equally o The comparisons are logically consistent (transitive) and how you make
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Chapter 5 - Microeconomics Chapter 5 Notes Consumer Choice...

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