Consumer equilibrium is found where the budget line is tangent to the highest attainable indifference curve. With an income of €100 and given prices, the budget constraint is defined by the equation 10B + 5S = 100. Point Z represents the specific bundle where the marginal rate of substitution between belts and socks equals the ratio of their prices, thereby maximizing the consumer's total utility within the specified budget.

A price floor is a government-imposed limit on how low a price can be charged for a product or service. By setting a price above the market equilibrium, the government ensures that producers, particularly in agricultural sectors, receive a minimum income. However, this often leads to a surplus of goods if the quantity supplied at the floor price exceeds the quantity demanded by consumers.

A price floor is a government-mandated minimum price for a good or service. If the floor is set above the market equilibrium price, it becomes a binding constraint, preventing the market from clearing and often resulting in a surplus of the good, as the quantity supplied will exceed the quantity demanded at that higher price.

When demand decreases, the demand curve shifts to the left. At the original price, there is now a surplus. To clear this surplus, the price must fall, which subsequently leads to a reduction in the quantity supplied and a new, lower equilibrium point.

When both income and prices double, the consumer's real purchasing power remains constant. Since the budget constraint shifts outward in a way that maintains the same relative prices and real income, the consumer's optimal consumption bundle remains unchanged, assuming preferences are stable. This demonstrates the principle of money illusion, where individuals respond to changes in real rather than nominal variables.

Milton Friedman's Permanent Income Hypothesis posits that individuals base their consumption patterns on their expected long-term average income, known as permanent income, rather than their transitory or current income. This theory helps explain why consumption remains relatively stable even when current income fluctuates due to temporary shocks, as households smooth their consumption over their lifetime.

The Permanent Income Hypothesis suggests that individuals base their consumption patterns on their expected long-term average income rather than temporary fluctuations. Since people can borrow during low-income periods and save during high-income periods, permanent income provides a more accurate reflection of an individual's true economic status and lifetime purchasing power than annual income.

Permanent income is a concept introduced by Milton Friedman, representing the expected long-term average income of an individual. It suggests that consumption patterns are based on this stable, predictable level of income rather than temporary fluctuations, which are often saved or borrowed against to smooth consumption over time.

According to the Permanent Income Hypothesis, individuals base their consumption on their expected long-term average income rather than transitory fluctuations. A recessionary period of unemployment causes a temporary drop in current income, but if the worker expects to return to employment, their permanent income—the discounted present value of expected future earnings—remains relatively stable. Thus, current income falls while permanent income is largely unaffected by short-term shocks.

Structural unemployment occurs when there is a fundamental mismatch between the skills workers possess and the skills demanded by the evolving economy. When an industry contracts due to technological change or shifting consumer preferences, workers in that sector often face long-term unemployment until they retrain or relocate.