1. Consumer Choice

2. Figure 1 The Budget Constraint
Number of Concerts per Month
Number of Movies per Month 15 12 9 6 3 1 2 4 5
With $150 per month, Max can afford 15 movies and no concerts, . . . A
12 movies and 1 concert or any other combination on the budget line. B
Points below the line are also affordable. C H D
But not points above the line. G E F

3. Figure 2 Changes in the Budget Line
Number of Concerts per Month 5 15
Number of Movies per Month 30 10
1. An increase in income shifts the budget line rightward, with no change in slope.

4. Figure 2 Changes in the Budget Line
Number of Concerts per Month 5 15
Number of Movies per Month 30
2. A decrease in the price of movies rotates the budget line upward.

5. Figure 2 Changes in the Budget Line
Number of Concerts per Month 5 15
Number of Movies per Month 30
(c)
3. while a decrease in the price of concerts rotates it rightward.

6. Figure 3 Total and Marginal Utility
Utils 60 50 40 70 30 20 10
Ice Cream Cones per Week 1 2 3 4 5 6
Total Utility
1. The change in total utility from one more ice cream cone . . .
2. is called the marginal utility of an additional cone.
3. Marginal utility falls as more cones are consumed.
Utils 30 20 10
Ice Cream Cones per Week 1 2 3 4 5 6
Marginal Utility

7. Figure 3 Total and Marginal Utility (continued)

8. Figure 4 Consumer Decision Making15 12 9 6 3 1 2 4 5
Number of Concerts per Month
Number of Movies per Month A B C D G E F

9. Figure 4 Consumer Decision Making (continued)

10. Figure 5 Effects of an Increase in Income30 27 15 12 9 6 3 1 2 4 5 7 8 10
Number of Concerts per Month
Number of Movies per Month
2. If his preferences are as given in the table, he'll choose point H
H''
1. When Max's income rises to $300, his budget line shifts outward. A B C D E F
3.But different marginal utility numbers could lead him to H' or H'' H H'

11. Figure 5 Effects of an Increase in Income (continued)

12. Figure 6 Deriving the Demand Curve
1. When the price of concerts is $30, point D is best for Max.
2. If the price falls to $10, Max's budget line rotates rightward, and he choose point J. 15 6 3 5 30 10 8 7
Number of Movies per Month K D J
3. And if the price drops to $5, he chooses point K.
Price per Concert
$30 D
4. The demand curve shows the quantity Max chooses at each price. J 10 K 5 3 7 10
Number of Concerts per Month

13. Figure 6 Deriving the Demand Curve (continued)

14. Figure 7 Income and Substitution Effects
Price Decrease:
Ultimate
Effect
(Almost Always)
Substitution Effect P QD Þ QD QD
if normal
Purchasing Power QD
if inferior
Price Increase:
Substitution Effect P QD Þ QD QD
if normal
Purchasing Power QD
if inferior

15. Figure 8 From Individual to Market Demand4 12
Jerry
Price $4 3 2 1
George
Price 6 12 $4 3 2 1
Elaine
Price 10 20 $4 3 2 1 + + = c C'
C''
Number of Bottles per Week

16. Figure 8 From Individual to Market Demand
(b)
Price $4 3 2 1 10 27 44
Number of Bottles per Week A
Market Demand Curve B C D E

17. Figure 9 Time Allocation
Economics Score
French Score 90 70 80 75
(a) 90
French Score 70 80 75
(b)
Economics Score F E D C C

18. Figure A.1 An Indifference Curve
1. If Max gets another concert… +1
Number of Concerts per Month
Number of Movies per Month 20 11 6 4 3 G -9
2. he could give up 9 movies and be just as satisfied.
3. For Max, points G and H are on the same indifference curve. +1 H -5 +1 -2 J +1 -1 K L 1 2 3 4 5
4. The indifference curve gets flatter moving rightward and downward along the curve.

19. Figure A.2 An Indifference Map
1. Max prefers any point on this indifference curve….
Number of Concerts per Month
Number of Movies per Month 20 G
3. And any point on this curve is preferred to any point on the other two.
2. to any point on this one R 11 H S J 6 1 2 3

20. Two Mistakes with Indifference Curves

21. Figure A.3 Consumer Decision Making with Indifference Curves1 2 3 4 5 6 9 12 15
Number of Concerts per Month
Number of Movies per Month A
2. but point D--on a higher indifference curve--is preferred.
1. Points B and E are affordable. B
3. At Max's best possible point, the budget line and indifference curve are tangent. D E

22. Figure A.4 An Increase in Income10 5 15 30
Number of Concerts per Month
Number of Movies per Month
1. When Max's income rises to $300, his budget line shifts outward.
H''
2. If his preferences are shown by these two indifference curves, he'll choose point H. H 12
3. But different preferences could lead him to H'' or H'. 6 D H' 3 6

23. Figure A.5 Deriving the Demand Curve
1. When the price of concerts was $30,
at point D.
Number of Movies per Month 15 K 10
2. But when the price of concerts falls to $10, their condition is satisfied at point J. 8 6 D J 1 2 3 4 5 6 7 10 15 30 D
Number of Concerts per Month
(b)
Price per Concert
$30 25 20
3. The demand curve shows the quantity of concerts Max chooses at each price for concerts. 15 J 10 K 5 1 2 3 4 5 6 7 10
Number of Concerts per Month