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    Answers Microeconomics: 3 Consumer Choice

    Uploaded by

    yogesh gunawat
    This document discusses consumer choice and microeconomic concepts including: 1) Budget lines showing consumption combinations of two goods with a limited income. 2) Indifference curves representing combinations of goods that provide equal utility or satisfaction to a consumer. 3) How a consumer will choose the highest indifference curve that can be afforded within their budget line.

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    Answers Microeconomics: 3 Consumer Choice

    Uploaded by

    yogesh gunawat
    49 views3 pages
    This document discusses consumer choice and microeconomic concepts including: 1) Budget lines showing consumption combinations of two goods with a limited income. 2) Indifference curves representing combinations of goods that provide equal utility or satisfaction to a consumer. 3) How a consumer will choose the highest indifference curve that can be afforded within their budget line.

    Original Description:

    SOLVED QUESTION ON CONSUMER COICE TOPIC OF MANAGERIAL ECONOMICS

    Original Title

    Amicr3 Consumer Choice

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    This document discusses consumer choice and microeconomic concepts including: 1) Budget lines showing consumption combinations of two goods with a limited income. 2) Indifference curves representing combinations of goods that provide equal utility or satisfaction to a consumer. 3) How a consumer will choose the highest indifference curve that can be afforded within their budget line.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    49 views3 pages

    Answers Microeconomics: 3 Consumer Choice

    Uploaded by

    yogesh gunawat
    This document discusses consumer choice and microeconomic concepts including: 1) Budget lines showing consumption combinations of two goods with a limited income. 2) Indifference curves representing combinations of goods that provide equal utility or satisfaction to a consumer. 3) How a consumer will choose the highest indifference curve that can be afforded within their budget line.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Answers Microeconomics

    3 Consumer choice

    01 Budget line
    a Good B

    60

    Good A
    100

    01 Budget line (01 a continued)


    b
    Good B

    72
    60

    Good A
    100 120

    01 Budget line (01 a continued)


    c
    Good B
    75
    60

    Good A
    100

    AMICR3.DOC Page 1 (of 3) 3 Consumer choice 08/06/2016


    02 Indifference curve 1
    IC2

    Good B
    b

    IC1
    c a
    IC1
    IC2

    Good A
    At point a, IC1 and IC2 have the same total utility, whereas at b and c, IC2 (point b)
    has a higher utility than IC1 (point c) because more of B can be consumed. However,
    an indifference curve shows combinations of goods with the same total utility.

    03 Indifference curve 2
    Good B

    Indifference
    curve?

    possible not possible


    Good A
    No, an indifference curve cannot rise because more of A and more of B would be
    consumed. This would imply a higher total utility level and, hence, a higher utility
    curve.

    04 Consumer choice
    Good B

    c
    a
    IC3
    IC1 IC2
    Good A

    Budget line
    a IC2 is the highest indifference curve where the whole income is spent.
    b lC1 is a lower indifference curve than IC2 even if the whole income is spent.
    c IC3 is not affordable because the income is too small.

    AMICR3.DOC Page 2 (of 3) 3 Consumer choice 08/06/2016


    05 Complements and substitutes

    Good B
    Budget line (Bl) 1
    Bl 2
    Good A
    A and B are substitutes because the cross-price elasticity of demand
    %change quantity demanded B
    ( %change price A ) is positive: Both numerator and denominator are
    positive and - consequently - the result, too.

    06 Normal and inferior goods


    Good B

    IC2
    Bl 1 IC1 Bl 2
    Good A

    A is a normal good, B an inferior good. Good A has a positive income elasticity of


    %change in quantity demanded
    demand ( %change in income ), whereas good B has a negative income
    elasticity of demand.

     Back to questions. Click here!

    AMICR3.DOC Page 3 (of 3) 3 Consumer choice 08/06/2016

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