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Giffen food
A good for which an increase in the price raises the quantity demanded
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Perfect complements
Two goods with rightrightangle indifference curves
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Normal good
A good for which an increase in income raises the quantity demanded
Key concepts
Budget constraint Perfect substitution Perfect complements Income effect
Indifference curve Marginal rate of substitution
Substitution effect Giffen good
Chapter 21 the theory of consumer choice
In this chapter you will
see how a budget constraint represents the choice a consumer can afford learn how indifference curves can be used to represent a consumer’s preference analyze how a consumer’s optimal choices are determined
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Inferior good
A good for which an increase reduces the quantity demanded
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Income effect
The change in consumption that results when a price change moves the consumer to a higher or lower indifference curve
Normal good
Inferior good
See how a consuncome and changes in prices decompose the impact of a price change in an income effect and a substitution effect apply the theory of consumer choice to four questions about household behavior
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Substitution effect
The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution
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Marginal rate of substitution
The rate at which a consumer is willing to trade one good for another
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Perfect substitutes Two goods with straightstraightline indifference curves
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Indifference curve a curve that shows consumption bundles that give the consumer the same level of satisfaction
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Budget constraint
the limit on the consumption bundles that a consumer can afford