Utiity Maximum 2 Flashcards
1
Q
Define a budget constraint
A
All combinations of bundles a consumer can afford based on their income and prices
2
Q
What does budget constraint mean?
A
This describes a our maximum expenditure given our income
3
Q
What does a change in income cause?
A
Parallel shifty in budget constraint
4
Q
What does a rise in income cause
A
A shift outwards
5
Q
What does a fall in income cause
A
An inward shift of income
6
Q
Give a practical example of rise in income
A
If we have 100 euro we can afford 10 10 euro pizza
But if we have 200 we can afford 20 10euro pizza
7
Q
What effect does change of price have on budget constraint
A
Change slope
