Change in Budget LineChange in Budget LineChange in Budget LineChange in Budget Line Consumer’s EquilibriumConsumer’s EquilibriumConsumer’s EquilibriumConsumer’s Equilibrium Price EffectPrice EffectPrice EffectPrice Effect Giffen Good ParadoxGiffen Good ParadoxGiffen Good ParadoxGiffen Good Paradox Applications of the Indifference Curve ApproachApplications of the Indifference Curve ApproachApplications of the Indifference Curve ApproachApplications of the Indifference Curve Approach What will be Covered?

A Change in the Money Income A Change in the Money Income. Y X 0 Tell Me the Change When... I

A Change in the Relative Price A Change in the Relative Price. Y X 0 Tell Me the Change When... Px

Y X 0 E D C Which Point Is the Equilibrium? E

Y X 0 E The Tangency Point Between the Budget Line and the Indifference Curve of the Highest Attainable Utility Level

Y X 0  A Different Level of Utility  Consumes on a New Budget Line  S.E. + I.E. Px Decreases

Y X 0  A Change in Consumption After a Change in Relative Price of Two Goods  Consumes on a Hypothetical Budget Line  No Change in the Utility Level Px Decreases

Y X 0  An Inferior Good  Consumes on a New Budget Line  Consumes Less X  An Increase in the Utility Level Px Decreases

Y X 0  A Normal/ Superior Good  Consumes on a New Budget Line  Consumes More X  An Increase in the Utility Level Px Decreases

Still Remember the Law of Demand?

Will Consume More X So What?

Px/Py X0 We Will Have An Upward- Sloping Demand Curve There Is A Theoretical Or Logical Possibility to Refuse The Law

The Law of Demand  Therefore the Law of Demand Is Asserted  The Law Has Not Been Rejected  Theory by Its Hypothetical Nature Cannot Reject Another Theory  Only Empirical Facts Can Reject a Theory  As There Is No Observations of Giffen Good Cases, The Law Is Confirmed

Left Shoes Right Shoes Are They SUBSTITUTES Or COMPLEEMNTS? Which IC Can Correctly Show Their Relationship?

Left Shoes Right Shoes What Is the Result of a S.E.?

Tea Coffee Are They SUBSTITUTES Or COMPLEEMNTS? Which IC Can Correctly Show Their Relationship? Tea

Tea Coffee What Happens If The MRSc < MRSe ? We only consume Tea! Tea Budget Line

Y X0

Money Income 0 Food Lump Sum Payment How Much Would You Consume In a Regular Restaurant? How Much Would You Consume In a Buffet Dinner ?

Money Income 0 Children Children Are Less Preferred Today! Money Income Has Been Increasing You Have Less Children!