Meaning of the Production Function The technical process that links inputs to the output of a good is known as the production function of that good. It is defined as the technological relationship between inputs and output giving the maximum output that can be produced from various input combinations. The production function analyses the relationship […]
Meaning and Types of the Production Function Read More »
In our situation of good X, good Y, and money income M; if money income and the price of good Y stays the same but the price of good X rises, then the consumer will feel poorer, and if the price of good X falls, then the consumer will feel richer. This observation has led
Income and Substitution Effects of a Price Change Read More »
Introduction In the analysis of consumer’s equilibrium, price and income are exogenous variables, and changes in the values of these variables have a direct effect on the consumer’s equilibrium or the consumer’s optimal choice of the goods. The effect of change in money income on the consumer’s optimal purchase decision is traced by the income
Change in Prices and Derivation of Demand Curve Read More »
Learning Objective To explain the technique and solution of the consumption decision problem Once the consumer identifies his or her preference concerning several consumption bundles represented by the indifference map and which bundles can or cannot be afforded represented by the budget line, the decision problem is now related to the consumption decision. The straightforward
The Consumption Decision Read More »