The Effect of Py Goods Price on Consumer Equilibrium: An Indifference Curve Approach

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

2024
Views:

306

Pages:

1
Author:

Masadepan C.

The Effect of Py Goods Price on Consumer Equilibrium: An Indifference Curve Approach Consumer behavior analysis using the IC approach with Px and M ceteris paribus, Py goes down: Px = 10; M = 80; Py = 5 Y1 = 5. 5M/Py = 10 X1 = 3. 6M/Px = 8 Y2 = 9M/P 'y = 16 X2 = 3,5 y 16 10 9 5,5 x 3,5 3, 68 Explanation: From the curve above, it is stated that, with the decrease in Py, the consumption power of X and Y changes. At first, the consumption of goods X amounted to 3.6 and the consumption of goods Y amounted to 5.5. Then, the consumption of good X changes to 3.5 and the consumption of good Y to 9. This happens because of a change in the price of good Y, 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 Y increases due to an increase in price, while the quantity of good X decreases due to the effect of the price of good Y. The budget line also changes when Py goes down. From the curve above, it is known that IC 2 is located above IC 1, which means that the satisfaction of IC 2 is higher than the satisfaction of IC 1. So, if Py is lowered, it can result in increased satisfaction and increased purchases of good Y.