文档介绍：The Theory of Consumer Choice
Chapter 21
The theory of consumer choice addresses the following questions:
Do all demand curves slope downward?
How do wages affect labor supply?
How do interest rates affect household saving?
Do the poor prefer to receive cash or in-kind transfers?
The Budget Constraint
The budget constraint depicts the consumption “bundles” that a consumer can afford.
People consume less than they desire because their spending is constrained, or limited, by their e.
The Budget Constraint
It shows the binations of goods the consumer can afford given his or her e and the prices of the two goods.
The Consumer’s Opportunities
Pints of
Pepsi
Number of
Pizzas
Spending
on Pepsi
Spending
on Pizza
Total
Spending
0
100
$ 0
$1,000
$1,000
50
90
100
900
1,000
100
80
200
800
1,000
150
70
300
700
1,000
200
60
400
600
1,000
250
50
500
500
1,000
300
40
600
400
1,000
350
30
700
300
1,000
400
20
800
200
1,000
450
10
900
100
1,000
500
0
1,000
0
1,000
Copyright © 2001 by Harcourt, Inc. All rights reserved
The Consumer’s Budget Constraint
Any point on the budget constraint line indicates the consumer’bination or tradeoff between two goods.
For example, if the consumer buys no pizzas, he can afford 500 pints of Pepsi (point B). If he buys no Pepsi, he can afford 100 pizzas (point A).
The Consumer’s Budget Constraint...
Quantity
of Pizza
Quantity
of Pepsi
0
Consumer’s
budget constraint
500
B
100
A
The Consumer’s Budget Constraint
Alternately, the consumer can buy 50 pizzas and 250 pints of Pepsi.
The Consumer’s Budget Constraint...
Quantity
of Pizza
Quantity
of Pepsi
0
250
50
100
500
B
C
A
Consumer’s
budget constraint
The Consumer’s Budget Constraint
The slope of the budget constraint line equals the relative price of the two goods, that is, the price of one pared to the price of the other.
It measures the rate at which the consumer will trade one good for the other.