How do the budget set and budget constraint change as p, decreases from p1’top1”? mIp2 New affordable choices Budget constraint pulp pivots; slope flattens from-p,p2 to Original budget set p1”/p p1/p2 m/p m/p X1
How do the budget set and budget constraint change as p1 decreases from p1 ’ to p1 ”? Original budget set x2 x1 m/p2 m/p1 ’ m/p1 ” New affordable choices Budget constraint pivots; slope flattens from -p1 ’/p2 to -p1”/p2 -p1 ’/p2 -p1”/p2
Budget Constraints- Price Changes Reducing the price of one commodity pivots the constraint outward. no old choice is lost and new choices are added, so reducing one price cannot make the consumer worse off
Budget Constraints - Price Changes Reducing the price of one commodity pivots the constraint outward. No old choice is lost and new choices are added, so reducing one price cannot make the consumer worse off