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Budget Constraint (BC)
 Budget constraints (Basic)The consumer chooses a basket of goods (X1,X2). The straight black line represents the Consumer's budget represented in amounts of (X1,X2). The Consumer maximizes his utility when he chooses the bundle (X1,X2) that is tangent to his highest utility curve (represented by the blue curves). The Consumer has infinite utility curves for different budget levels. |  Lowering the Price of a Normal GoodThe Budget Constraint moves from the dark gray line to the black line. The substitution effect is from Q1 to Q2. The income effect is from Q2 to Q3. Note that the light gray line, used for the substitution effect, is a BC of the same slope as the final BC, but applied to the initial utility curve. |  Lowering the Price of an Inferior GoodO Bem Inferior é caracterizado por ter efeito renda negativo. Assim, uma diminuição em seu preço ainda aumenta o seu nível de consumo, mas não de forma tão intensa quanto com bens normais. |  Lowering the Price of a Giffen GoodThe Giffen Good is characterized by having a counterintuitive dynamic: a price decrease decreases the consumption of the good. This is because it is "so inferior" that the negative income effect outweighs the substitution effect. |
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Subtitle
Q = Quantity
Black Line = Budget Constraint (BC)
blue curve = Preference curve
Dark Gray = 1st RO ; Light Gray = BC Replacement
X1 = Quantity of Good 1 ; X2 = Quantity of Good 2
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