Econ1-Fall2010-05B-Demand-handout

Econ1-Fall2010-05B-Demand-handout - Readings Economics1

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Economics 1 rinciples of Microeconomics Principles of Microeconomics 5. Demand (B) Fall 2010 Herb Newhouse 1 eadings Readings hapter 5 Appendix (p 3) Chapter 5 Appendix (p W 1 W 13) The Best Affordable Bundle 2 utline Outline dget constraint and preference review Budget constraint and preference review. Special types of goods. Choice. Utility maximization. Substitution and income effects. 3 udget Constraint (More Formally) Budget Constraint (More Formally) Define the following: g M = income quantity of good 1 x 1 = quantity of good 1 x 2 = quantity of good 2 p 1 = price of good 1 p 2 = price of good 2 eneral Budget Constraint: = General Budget Constraint: p 1 x 1 + p 2 y 2 M Our Junk Food Budget Constraint: 2 h + c = 10 4
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Graph of the Budget Constraint ( p 1 x 1 + p 2 x 2 = m ) ood 2 Good 2 1 21 p M x x p  M 1 slope p 22 pp 2 p 2 p Good 1 1 M p 5 references Preferences references describe how much an individual Preferences : describe how much an individual values different goods and services. Utility : a word that economists use to describe an individual’s level of happiness. Indifference curves : trace out combinations of ods and services among which consumers goods and services among which consumers are indifferent. 6 raphical Depiction of Indifference Curves Graphical Depiction of Indifference Curves andy bars Candy bars 1 2 MU m MU C Utility increases to The northeast.
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Econ1-Fall2010-05B-Demand-handout - Readings Economics1

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