Chapter 5 Choice of consumption
Chapter 5 Choice of consumption
Optimal choice is at the point in the budget line with highest utility. oThe tangency solution of an indifferent curve and the budget line: MRS=-P1/P2. Fig
⚫Optimal choice is at the point in the budget line with highest utility. ⚫The tangency solution of an indifferent curve and the budget line: MRS = – p1 / p2 . Fig
oBasic equations: oMU/P MU,/P2 and 0p1X1+p2x2=m. Figs. How if negative solutions.)
⚫Basic equations: ⚫MU1 / p1 = MU2 / p2 and ⚫ p1 x1 + p2 x2 = m. Figs. ⚫( How if negative solutions.)
oInterior solutions,and Boundary (Corner)solutions. oKinky tastes. Figs
⚫Interior solutions, and ⚫Boundary (Corner) solutions. ⚫Kinky tastes. Figs
oThree approaches to the basic equations: Graphically; ●As-one-variable; ●*Lagrangian
⚫Three approaches to the basic equations: ⚫Graphically; ⚫As-one-variable; ⚫*Lagrangian
OThe optimal choice is the consumer's demanded bundle. ●The demand function
⚫The optimal choice is the consumer ’s demanded bundle. ⚫The demand function
Examples: operfect substitutes, perfect complements, oneutrals and bads, oconcave preferences. Figs
⚫Examples: ⚫perfect substitutes, ⚫perfect complements, ⚫neutrals and bads, ⚫concave preferences. Figs
Cobb-Douglas demand functions. ●*Choosing taxes. (By *Slutsky decomposition.) Figs
⚫Cobb-Douglas demand functions. ⚫* Choosing taxes. (By *Slutsky decomposition.) Figs
Chapter 6 Demand
Chapter 6 Demand
oDemand functions: ●X1=X1(p1,p2,m), X2=X2(P1,P2,m)
⚫Demand functions: ⚫x1 = x1 (p1 , p2 , m), ⚫x2 = x2 (p1 , p2 , m)