Price Increase Px And Consumer Replacement Elasticity In Indifference Curve Analysis

University:
Elon University
Course:
ECO 1000: Economics
Academic year:

2023
Views:

454

Pages:

1
Author:

MCerah

Price Increase Px and Consumer Replacement Elasticity in Indifference Curve Analysis Consumer behavior analysis using the IC approach with Py and M ceteris paribus, Px rises: Px = 14; M = 80; Py = 8 Y1 = 5. X1 = 3. Y2 = 5.8M/P X2 = 2,4 5M/Py = 10 6M/Px = 8 'x = 5.7 y 10 5,8 5,5 x 2, 43, 65, 78 Explanation: From the curve above, it can be seen that an increase in Px results in a change in the consumption power of X and Y. Initially, the consumption of good X is 3.6 and the consumption of good Y is 5.5. Then, the consumption of good X changes to 2.4 and the consumption of good Y to 5.8. This happens because of a change in the price of good X, the incident is in accordance with the law of demand, namely if the price increases, the demand decreases. From this case, the quantity of good X decreases due to price increases, while the quantity of good Y increases due to the influence of the price of good X. The budget line also changes when Px increases. From the curve above, it is known that IC 1 is located above IC 2, which means that IC 1 satisfaction is higher than IC 2 satisfaction. So, if Px is increased, it can result in a decrease in satisfaction and a decrease in purchases of good X.