00:01
So here we're talking about consumer choice problems, and we want to have a graph.
00:04
So let's draw a graph.
00:05
If we're told to have a graph, let's do it.
00:07
So we are going to put oil products and non -oil products, okay? and my argument is that a consumer faces a trade -off between buying them, right? so if i think of here, for example, having a budget constraint, this is going to be be my initial budget.
00:29
And according to that budget, this consumer was going to buy something like this, right.
00:37
And this initial point zero is my initial choice.
00:45
But now, the price of the oil products going up means that we can afford fewer oil products.
00:51
So my argument is that the budget constraint is going to shift like this, right? this is going going to be the shift in the budget.
01:02
So the key thing is, here is to think about the income and substitution effects.
01:09
So the substitution effect means that you want to hold wealth, wealth or purchasing power constant.
01:20
So imagine what you do if new prices, but same purchasing power.
01:37
So imagine that we had a different budget constraint going through this original point.
01:44
And actually, let me draw that as a straight line.
01:46
So my argument is, let's think about this, right? and my argument is that these two lines are parallel.
01:55
So this one reflects the new prices, but same ability to buy, because we can still afford 0 .0...