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Budget Constraints: Effect on Goods by Justin Tapp

Author: Sophia

Video Chapters

(00:00 - 00:11) Intro
(00:12 - 00:29) Budget Constraint and Optimal Choice
(00:30 - 01:17) Plotting a Budget Constraint
(01:18 - 01:57) Increase in Income
(01:58 - 02:33) Normal Goods and Inferior Goods
(02:34 - 03:10) Plotting a Movement Toward Normal Goods Given an Increase in Income
(03:11 - 03:25) Review

Terms to Know

Budget Constraint: The graphical depiction of consumer income relative to the price of goods available. Where the budget constraint touches the highest indifference curve available, the consumer is defined to be optimizing consumption.
Inferior Goods: Goods for which demand decreases as income increases.
Normal Goods: Goods for which demand increases as income increases.
Optimal Choice: Goods and services purchased by a consumer that provides the highest level of utility possible.