Indifference Curve: The graph that shows the goods providing the same satisfaction level is known as the indifference curve. They are downward slopping curve and convex to the origin. The two indifference curve lines never intersects each other. Perfect Complement Goods: All those goods which are complement for each other that can be used only together. Example: car and petrol. Budget Line: It is defined as the combination of all the goods that a consumer can purchase, exhausting all his income. The formula for the budget line is: Here, is the quantity of good X. is the quantity of good Y. is the total income. is the price of good X. is the price of good Y. Substitution effects: It states that the demand of a good increases if the price of its substitute goods increase and vice versa. Take an example of tea and coffee, if prices of tea increase, then the demand for coffee increases. Income effects: It states that the demand for normal goods and the income are directly related which means that when income increases then the demand for normal goods also increases and vice versa.

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Chapter 10.A, Problem 14P

To determine

Concept Introduction:

Indifference Curve: The graph that shows the goods providing the same satisfaction level is known as the indifference curve. They are downward slopping curve and convex to the origin. The two indifference curve lines never intersects each other.

Perfect Complement Goods: All those goods which are complement for each other that can be used only together. Example: car and petrol.

Budget Line: It is defined as the combination of all the goods that a consumer can purchase, exhausting all his income. The formula for the budget line is:

Here,

is the quantity of good X.

is the quantity of good Y.

is the total income.

is the price of good X.

is the price of good Y.

Substitution effects: It states that the demand of a good increases if the price of its substitute goods increase and vice versa. Take an example of tea and coffee, if prices of tea increase, then the demand for coffee increases.

Income effects: It states that the demand for normal goods and the income are directly related which means that when income increases then the demand for normal goods also increases and vice versa.

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