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Author Question: How does a decrease in the price of one good affect a consumer's budget constraint? How is the ... (Read 82 times)

K@

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on: Jun 29, 2018
How does a decrease in the price of one good affect a consumer's budget constraint? How is the effect different from a decrease in the consumer's income?
 
  What will be an ideal response?

Question 2

Are some monopolies created by government legislation that gives a firm the unique right to produce a good or service?
 
  What will be an ideal response?


Jordin Calloway

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Reply #1 on: Jun 29, 2018
Answer to Question 1

A decrease in the price of one good causes the budget constraint to pivot rightward along the axis that measures the quantity of the good in question. This is because the consumer's endowment can buy more units of a good when the price falls. The slope of the budget constraint also changes because the opportunity cost changes when the price of a good falls.
In case of a decrease in the consumer's income, the budget constraint shifts to the left. The slope will not change as the opportunity cost does not change with a change in income.

Answer to Question 2

Yes, some monopolies are created by government legislation, such as patent or copyright laws and the granting of public franchises. Monopolies that are created because of legal barriers to entry are called legal monopolies.


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K@

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Reply #2 on: Jun 29, 2018
Thank you :)


Jordin Calloway

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Reply #3 on: Jun 29, 2018
Happy to help you


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