tailieunhanh - Ten Principles of Economics - Part 46

Ten Principles of Economics - Part 46. Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms. Economists therefore study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact with one another. | CHAPTER 21 THE THEORY OF CONSUMER CHOICE 465 Pints of Pepsi Number of Pizzas Spending on Pepsi Spending on Pizza Total Spending 0 100 0 1 000 1 000 50 90 100 900 1 000 100 80 200 800 1 000 150 70 300 700 1 000 200 60 400 600 1 000 250 50 500 500 1 000 300 40 600 400 1 000 350 30 700 300 1 000 400 20 800 200 1 000 450 10 900 100 1 000 500 0 1 000 0 1 000 Table 21-1 The Consumer s Opportunities. This table shows what the consumer can afford if his income is 1 000 the price of Pepsi is 2 and the price of pizza is 10. Figure 21-1 The Consumer s Budget Constraint. The budget constraint shows the various bundles of goods that the consumer can afford for a given income. Here the consumer buys bundles of Pepsi and pizza. The more Pepsi he buys the less pizza he can afford. measures the number of pizzas. Three points are marked on this figure. At point A the consumer buys no Pepsi and consumes 100 pizzas. At point B the consumer buys no pizza and consumes 500 pints of Pepsi. At point C the consumer buys 50 pizzas and 250 pints of Pepsi. Point C which is exactly at the middle of the line from A to B is the point at which the consumer spends an equal amount 500 on Pepsi and pizza. Of course these are only three of the many combinations of Pepsi and pizza that the consumer can choose. All the points on the line from A to B are possible. This line called the budget constraint shows the consumption bundles that the consumer can afford. In this case it shows the tradeoff between Pepsi and pizza that the consumer faces. budget constraint the limit on the consumption bundles that a consumer can afford 466 PART SEVEN ADVANCED TOPIC The slope of the budget constraint measures the rate at which the consumer can trade one good for the other. Recall from the appendix to Chapter 2 that the slope between two points is calculated as the change in the vertical distance divided by the change in the horizontal distance rise over run . From point A to point B the vertical distance is 500 pints