Tuesday

 

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 7 Topics for Further Study
Chapter 21 of 36 The Theory of Consumer Choice
Section 12 of 26
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Figure 7 – An Increase in Income
When the consumer's income rises, the budget constraint shifts out from A to B.
If both goods are normal goods the consumer responds to the increase in income by buying more of both of them.
Here the consumer buys more pizza and more Pepsi.
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The indifference curves I1 and I2 are drawn assuming both pizza and Pepsi are normal goods.
If a consumer wants more of a good when his income rises economists call it a normal good.
If a consumer wants less of a good when his income rises economists call it an inferior good.
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In Figure 7 a consumer’s income increases and budget constraint line shifts right from A to B.
With higher income, the consumer can afford more of both goods, pizza and Pepsi.
Because the relative price of the two goods has not changed the slopes of the new budget constraint and the initial budget constraint are the same and are parallel.
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The expanded budget constraint allows the consumer to choose a higher quantity combination of pizza and Pepsi.
This is a point on a higher indifference curve, I2.
The consumer's optimum moves from point C to point D.
The consumer now chooses to consume both more Pepsi and more pizza.
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normal good and inferior good
seijōzai to rettōzai
正常財と劣等財