Microeconomics 4

Curve tracing the utility-maximizing combinations of two goods as the price of one changes.

Curve relating the quantity of a good that a single consumer will buy to its price.

An increase in a person’s income can lead to less consumption of one of the two goods being purchased.

Curve relating the quantity of a good consumed to income.

Two goods are substitutes if an increase in the price of one leads to an increase in the quantity demanded of the other.

Two goods are complements if an increase in the price of one good leads to a decrease in the quantity demanded of the other.

Two goods independent if a change in the price of one

good has no effect on the quantity demanded of the other.

1. Consumers will tend to buy more of the good that has

become cheaper and less of those goods that are now

relatively more expensive.

2. Because one of the goods is now cheaper, consumers

enjoy an increase in real purchasing power.

Change in consumption of a good associated with a change in its price, with

the level of utility held constant.

Change in consumption of a good resulting from an increase in purchasing

power, with relative prices held constant.