Explain the two major consumer constraints and how these two constraints determine the budget line? What...
Explain the two major consumer constraints and how these two constraints determine the budget line? What happens when the budget line shifts outward and is it good for the consumer?
Homework Answers
The two major consumer constraints are :
Budget Constraint : Consumer needs to purchase the various commodities within the given budget. The choice of commodities depend on the overall budget of the consumer.
Availability and Price of individual commodities : Availability and Price of individual commodities determine the maximum amount of commodities purchased . It is determined based on the price and availability of individual commodities.
Budget Line is determined by the choices and combination of various goods purchased within a given budget and thus gives the combination of two commodities within a given budget.
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When the budget line shifts outwards, the overall budget increases and thus more units of each of the goods can be purchased as the overall budget increases.
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Explain the two major consumer constraints and how these two
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10. The figure shows two indifference curves and two budget
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10. The figure shows two indifference curves and two budget
constraints for a consumer named Kevin.
Number of Sweaters B 28 21 0 12 35 63 Number of Shirts (a) If Kevin's income is $1,260, then what is the price of a sweater? (b) Suppose point A was Kevin's optimum last week, and point B is his optimum this week. What happened between last week and this week? (c) If point A is Kevin's optimum, then at that optimum, what...
curve to the right. True or false? Explain. 4. The budget line shows all possible combinations of two goods that yield the same level of utility to the consumer. True or false? Explain. 5. In ordinal utility, consumer equilibrium occurs at the point where: MRSxy Py/Px. (Assume good Y is on the Y axis and good X is on the X axis.) True or false? Explain. 6. Ordinal Utility (Indifference Curves & Budget Constraint Lines) has been said to have...
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