note - ch 7

# note - ch 7 - Econ 251 Fall 09 Handout 11 09/29/09 Chapter...

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Econ 251 Fall 09 Handout 11 09/29/09 1 Chapter 7 – Utility and Demand I. Utility = Consumer’s objective : Since our income is limited => ____________________________________ Simplified case : __________________ consumption choices must satisfy __________________________ Def. Budget Line The Budget Line is then: Real Income (in terms of good X) = Relative Price of good X (in terms of good Y) =

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Econ 251 Fall 09 Handout 11 09/29/09 2 Example : Nick has income I=\$20 and faces P D = \$1, P H =\$2 Nick’s budget constraint is: Graphically: Q: What happens to the budget line if the price of donuts increases , ceteris paribus? Suppose P D rises to \$2. New budget line: Graphically: b Any time you change the price of a good, the budget line ______________________
Econ 251 Fall 09 Handout 11 09/29/09 3 Q: What happens to the budget line if income decreases , ceteris paribus? Suppose P

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## This note was uploaded on 10/04/2011 for the course ECONOMICS 251 taught by Professor Kelly during the Spring '11 term at Purdue.

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note - ch 7 - Econ 251 Fall 09 Handout 11 09/29/09 Chapter...

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