To explain: the concept of price consumption curve.
Explanation of Solution
Budget line: It refers to the graphical representation of all possible combinations of two goods that can be produced, given the level of income and market prices.
An indifference curve shows all possible combination of two goods that gives the same level of satisfaction/utility to the consumer.
An optimal consumption lies at the tangency of the budget line and the indifference curve. The slopes of the budget line and the indifference curve are equal at the point of the tangency.
Price Consumption Curve is the graphical representation of the change in consumer's consumption choices with the change in the price of one of the good and it leads to rotation in the budget line due to change in the real income of the consumer.
A price consumption curve connects the points, where the budget line is tangent to an indifference curve. All points of tangency are connected by this curve.
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EBK MICROECONOMICS
- Economics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub CoEconomics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning