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Can Information Costs Affect Consumer Choice AgEcon Search Ageconsearch Umn

Can Information Costs Affect Consumer Choice AgEcon Search Ageconsearch Umn

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hi i'm bob in the last video we talked about how income changes affect consumers optimal consumption choice today we will investigate the effects of price change on the consumer's optimal bundle of goods the total price effect on the demand of a good can be decomposed into the substitution effect and the income effect i use the same noodles and ice cream example the consumer has 100 dollars per day she spends all her income on two goods noodles and ice cream the price of noodles is five dollars per bowl and the price of ice cream is two dollars per kong i draw the initial optimal consumption choice for the consumer her budget constraint is tangent to the highest possible indifference curve at point a point a represents her optimal consumption choice suppose that the price of noodles drops from five dollars to 2.5 dollars the consumer can afford 40 bowls of noodles if she spends all her income on noodles she can still afford 50 ice cream cones if she does not buy any noodles because the

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