lity. This isthe Basic hypothesis of earns tity theory. fy ni conser he eat each oral consumption o that commodiy Asie for every sucessive nit becomes anise This i llastratd7 ional eg tthe cost of novels total sity s 4 come among goods and services (incl pet orth one od ing the Py apes spent on each go0d al Ui can be ox U be equal if consumer ofan exam inhi he Peles for goods Xand Y ty Schedule of Consumer A spent on both ginal lity percupe® ere cach rupee sae is greatest ‘ elem paced rapes by rape “Aatyss-The Lave of Diminishing Marga pnw ih ty anol go Tse itocion om svngs. The maria vy seen,Economics Managerial vidal unis netto bobamognenss bah consumer remain unchanged amis ofthe good st rn be a continous cee Di io the use of TONEY However, ini cfaconsumer, which 8 se following Fe ad peices) onde subject 0 OE ations nso oosscan ve ordeeio PEFT iferet oF mination of the £008. oul ie combat to agiven mequiresthatfa.consune eA to bundle 2, he doesnot atthe Che prefers bundle do bul rons ofthe oro 00d! ity Cure: an oor of Consioer Behan Unite of God Y curve T2345 @ 7 Units of Good X When these combinations 3) erence cre I> sayy and € (ee, 2X + 299) on i ihrer, eat the combinations represented can be reretene san indiferentecurve fection; and gen of he cons ‘oo goods proving the 506 oe eve represents hh represents the prefersor of Contuner Behasour Movngertes ooomee et 42.2. Marginal Rat of Substiution. The marginal a of substi lod ¥ tat mist be given pin exchange for an isfacton tn her wd, shaws ‘consumgtion ofthe ot ‘dowd sloping indifernce euve? (i \ Indifference curve Unita of Good ¥ ol Fig. 45. Downart Slope of nteerce Cus. Initerence Unis of Good ¥6 «iat Koons. Prenton Pent ecines two havesiflesinward Maroxs uot to 4B when price of ocd ¥ (ui P, wachanged get Lines us vapreference by ase of prices ofthe 0 Prices are Py and Py 3, 8 Fg 410.Change in Cone Inert combination X* and 17 of goods X jam point, havi pointbecause ities annotbe considered an opin “The maximum amount "2000 50 (0) + 400) sii, eed tthe ama aout of Or” SE ‘Units of Good 2 al set Line ¥ Units af Good X re posible cons ig 412, Consuma Equitrian miele 4.12, Consumers Ege se Sei rect hen ncome th consume is, teenie oven cuit PT, te fidget ine A Wo core dee accardance So,the combinations (40.0) and ods X and. Not fn ¥en prices of be ay EIR BY EUR Be. getavepries of Sand oh ene fendof Managerial Economics Eee theory of Consumer Behaviour showsthe ese points oangency(E pes is change which rome effet In case o 0 Income Consumption Curve (ICC) Unite of Good Y Unite of Good ¥ Unis of Good X “We sain Fig, 4.15 that fal ‘which ad income effec. AS price of good X (heapr relative t good Y. The consumer pod Y. substation effect oft price change. As price eet on other goods. in ober words, when price of all the consume ra TBErh be oy send on good X self This sealed he income eft ofa price change, Pic Ess and Fe Fed cay ier depending on whether good Xs norma, nferor or» Giffen good, Let ws discuss them in detail, "When Good Xis a Normal Good. Good is norm demanded and prices are inversely elated, In Fig 416, 5; Ifthe pace of goods falls this wil shift the bd higher indifference curve () and anew equilibrium ‘in sonsumption of {from Xj 10%. Taner dinguishbernee income and sbsiaion eso price change we havetn Fit nine eae at it canbe done by hypothetically removing he increase inca income ut he const ‘sack onthe ai ing variation). This is achieved by a parle! ‘hi ofthe new budge 3 ference curve (}). We thus get no nferor 20 raat incase of ere eome Teck Slows the law of demand, ie, its quantiy | theoignal budget line with equilibrium apo om AB to AC, allowing the consumer to each Unis of Good ¥ sx the satis Pea: Sete to. This is income effet ofa price change In FigManagerial Economic jos eet: Case oft nora god uying more of 00d X Ths, for noel 0 od the je, meaning th mand ee follow the same proces aso Fig. 4.16, Again, the a arovesthe cub for Eto Ee, tneconsumption iy ue te income fect being negative nese of 2 aa seansunpton of goed fr NX This shown bya movement br geod & ges up from. inal income ofthe con fiom 0 E; God (Unis) Good Y(Units)t 4 Fie AW incone td Subsite Es: Case fs Gil Coot INDIFFERENCE CURVE TECHNIQUE. 500 which he canspend: be ponds some money. neigh no money tome and good X we can get a ge ine (Fig 419) fan to AB With every sift f and the consumer buys 40 units of J, oe 8 X(Unit) 1/40 = Rs. 10 “rF,=Rs, Yat eguilbinm B, he boy sranded and price of good X and join "ese po part of Fig 4.18 1 Got