quora
Nobody downloaded yet

Explanation of the graphics figures upon budget - Assignment Example

Comments (0) Cite this document
Summary
In the diagram below Linda’s budget set is depicted when she is in Adelaide. The vertical axis measures expenditure on food while the horizontal axis measures her expenditure on clothing. With her present income and given the prices of food and clothing …
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER92.2% of users find it useful
Explanation of the graphics figures upon budget
Read TextPreview

Extract of sample
"Explanation of the graphics figures upon budget"

Download file to see previous pages The budget line implies that if Susan spent all her income on clothing she would be able to purchase OB units of it. If on the other hand, Susan spent all her income on food, she would be able to purchase OA units of food. If she allocates her income on both goods then all combinations of food and clothing she can attain are those on or within the line AB. Thus the triangle OAB defines the combinations of food and clothing attainable by Susan, given her income and the prices of food and clothing.
Assuming that Susan is rational, and the law of diminishing marginal utility holds for both goods, and she has continuous and complete preferences, her preferences can be depicted by downward sloping convex indifference curves. Susan’s objective is to attain the highest possible indifference curve within the reach of her budget set. This is shown in figure 2. Figure 2: the utility maximising choice in Adelaide As shown above in figure 2, given her budget constraint, Susan’s utility maximizing choice in Adelaide is point E. She consumes OC of food and OD of clothing and this generates the level of utility denoted by the indifference curve IC1. Linda is aware that in Melbourne the prices of both goods are higher and that food is relatively more expensive than clothing compared to the situation in Adelaide. Therefore, with her present income (that she earns by working in Adelaide) Susan will be able to by lesser of both food and clothing. Additionally, because food is relatively more expensive, not only she will be able to buy less of food if she invests all her income in food compared to the amount of food she would be able to buy in Adelaide, the reduction in the amount of food she can buy will be more than the reduction in the amount of clothing she will be able to buy. What this implies is that i) her budget line will shrink inwards and ii) it will be relatively more flat compared to her budget line in Adelaide. This is depicted in figure 3. Figure 3: FG - Susan's budget line in Melbourne if her income remains equal to her Adelaide income In the diagram above, FG is Susan’s budget line in Melbourne if her income remains unchanged. Observe that not only can she buy fewer amounts of either products, the reduction in her capacity to purchase clothing had she chosen to invest all her income in clothing, depicted by the amount GB in the figure above, is less than the reduction in the amount of food she can buy if she invests all her income in food, AF. This is implied by the fact that food is relatively more expensive than clothing in Melbourne. Figure 4: Susan's new budget set relative to her old preferred bundle and utility level. Therefore, as reflected in figure 4, Susan can no longer access the utility level denoted by the indifference curve IC1 and nor can she afford the commodity bundle she preferred when she was in Adelaide. Therefore her real income will fall if she has to move to Melbourne but her income is still as it was back in Adelaide. Linda, if she has to make sure Susan accepts the offer, will have to pay her enough to ensure that her real income is at least as high as it is presently in Adelaide. There are two possible ways of achieving this. I. If Susan is paid an income so that she can purchase a commodity bundle that places her again at the utility level IC1. This implies paying her an income over her present Adelaide income that will allow her to access her old indifference curve IC1. This would be what is termed as the Hicksian compensation. The idea is that Susan will be back at her old real income level if she has access to her old utility level. Figure 5: The Hicksian Compensation - PQ ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Explanation of the graphics figures upon budget Assignment”, n.d.)
Retrieved de https://studentshare.org/macro-microeconomics/1390878-explanation-of-the-graphics-figures-upon-budget
(Explanation of the Graphics Figures Upon Budget Assignment)
https://studentshare.org/macro-microeconomics/1390878-explanation-of-the-graphics-figures-upon-budget.
“Explanation of the Graphics Figures Upon Budget Assignment”, n.d. https://studentshare.org/macro-microeconomics/1390878-explanation-of-the-graphics-figures-upon-budget.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
Budget
The common types of budget are performance budget, cash budget and budget fore cast. Performance budget is based on anticipated revenues and expenses that are anticipated to be incurred in the future (Millett, 2011). Cash budget predicts how the available revenues will be utilized to accomplish a project (Millett, 2011).
5 Pages(1250 words)Assignment
Information Graphics
This research will outline areas of the Information graphics operations and working. Before we go into the depth of info-graphics we should know about graphics and their uses. Graphics are a
8 Pages(2000 words)Assignment
Digital graphics for interactive media
It is the embedding of digital media into it that promotes its purpose effectively. It is the introduction of these interactive navigation bars and rollover buttons that give any websites a professional edge. It is not only about the edge
4 Pages(1000 words)Assignment
Digital graphics
tion in big and new printers, or monitors because it means that the quality produced will be better, as well as one has a big zooming area than would have in small resolutions. The only challenge is buying the big and developed mobile phones, printers or e-book readers may be
2 Pages(500 words)Assignment
Budget Planning
First, an under budget could imply that an organization lacked enough labor to do the forecasted work, meaning the scheduled work is in peril and the most likely course of action is to go over budget to hire more people to complete the
1 Pages(250 words)Assignment
Budget
No one is to miss practice or attending the main competition events due to lack of funding. The activities are in line with the sports program’s mission statement that emphasizes on participation and athletic
1 Pages(250 words)Assignment
Budget Assignment
This money is divided into two; $750 million to the MTA and $750 million for the DOT capital programs. DOT operates, maintains, and administers State and local agencies and public
3 Pages(750 words)Assignment
Budget Law
In this phase first the appropriation process takes place in which the Congress has to make the decision of dividing the funds into different governmental organizations and entities as per their needs. This task is performed by the appropriations committee and then a particular legislation is enacted by the Congress that allows the governmental.
2 Pages(500 words)Assignment
Budget
Nevertheless, for the previous fiscal year, the anticipated plan has on average revenues totaling $2.5million. The infrastructure improvement budget suggests expenses totaling to a tune of around $1.7 million, with an additional $0.5 Million in
2 Pages(500 words)Assignment
Nursing budget
Also if we are not covering our shifts effectively enough without our employees having to work more hours than should be expected than we would also expect our turnover to be considerably higher than others. 2 - 6. We need to purchase a portable ultrasound bladder urine volume scanner.
4 Pages(1000 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Let us find you another Assignment on topic Explanation of the graphics figures upon budget for FREE!
logo footer
Contact us:
+16312120006
Contact Us Now
FREE Mobile Apps:
  • StudentShare App Store
  • StudentShare Google play
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • Miscellaneous
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us