Chapter five Choice
Chapter Five Choice
Structure Rational constrained choice Computing ordinary demands nterior solution(内在解) Corner solution(角点解) Kinky" solution EXample: Choosing taxes
Structure Rational constrained choice Computing ordinary demands – Interior solution （内在解） –Corner solution （角点解） – “Kinky” solution Example: Choosing taxes
Economic rationality The principal behavioral postulate is that a decisionmaker chooses its most preferred alternative from those availlable to it The available choices constitute the choice set How is the most preferred bundle in the choice set located?
Economic Rationality The principal behavioral postulate is that a decisionmaker chooses its most preferred alternative from those available to it. The available choices constitute the choice set. How is the most preferred bundle in the choice set located?
Rational Constrained choice More preferred ndles Affordable bundles
Rational Constrained Choice x1 x2 Affordable bundles More preferred bundles
Rational Constrained Choice More preferred bundles Affordable bundles
Rational Constrained Choice Affordable bundles x1 x2 More preferred bundles
Rational Constrained Choice X1
Rational Constrained Choice x1 x2 x1 * x2 *
Rational Constrained Choice (X* x2 )is the most preferred affordable bundle X1
Rational Constrained Choice x1 x2 x1 * x2 * (x1 *,x2 *) is the most preferred affordable bundle
Rational Constrained choice The most preferred affordable bundle is called the consumers ordinary DEMAND(一般需求) at the given prices and budget. Ordinary demands will be denoted by X, (p1,P2, m)and X2 (p1,p2, m)
Rational Constrained Choice The most preferred affordable bundle is called the consumer’s ORDINARY DEMAND （一般需求）at the given prices and budget. Ordinary demands will be denoted by x1 *(p1 ,p2 ,m) and x2 *(p1 ,p2 ,m)
Rational Constrained choice When X,*>0 and X2 >0 the demanded bundle is Interior If buying(,* x2 *)costs Sm then the budget is exhausted
Rational Constrained Choice When x1 * > 0 and x2 * > 0 the demanded bundle is INTERIOR. If buying (x1 *,x2 *) costs $m then the budget is exhausted
Rational Constrained Choice (X,*, X2 *)is interior. (X,, X2 *)exhausts the budget X1
Rational Constrained Choice x1 x2 x1 * x2 * (x1 *,x2 *) is interior. (x1 *,x2 *) exhausts the budget