Economics for SSC CGL

Consumer Behavior:

• The budget set is the collection of all bundles of goods that a consumer can buy
  with her income at the prevailing market prices.

• The budget line represents all bundles which cost the consumer her entire income.
  The budget line is negatively sloping.
  • The budget set changes if either of the two prices or the income changes.
  • The consumer has well-defined preferences over the collection of all possible
  bundles. She can rank the available bundles according to her preferences
  over them.
  • The consumer’s preferences are assumed to be monotonic.
  • An indifference curve is a locus of all points representing bundles among which
  the consumer is indifferent.
  • Monotonicity of preferences implies that the indifference curve is downward
  sloping.
  • A consumer’s preferences, in general, can be represented by an indifference map.
  • A consumer’s preferences, in general, can also be represented by a utility function.
  • A rational consumer always chooses her most preferred bundle from the budget set.
  • The consumer’s optimum bundle is located at the point of tangency between the
  budget line and an indifference curve.
  • The consumer’s demand curve gives the amount of the good that a consumer
  chooses at different levels of its price when the price of other goods, the consumer’s
  income and her tastes and preferences remain unchanged.
  • The demand curve is generally downward sloping.
  • The demand for a normal good increases (decreases) with increase (decrease) in
  the consumer’s income.
  • The demand for an inferior good decreases (increases) as the income of the
  consumer increases (decreases)
• The market demand curve represents the demand of all consumers in the market
  taken together at different levels of the price of the good.
  • The price elasticity of demand for a good is defined as the percentage change in
  demand for the good divided by the percentage change in its price.
  • The elasticity of demand is a pure number.
  • Elasticity of demand for a good and total expenditure on the good are closely
  related.