Econ 281 Chapter4a - 1 Chapter 4 - Consumer Choice People...

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Unformatted text preview: 1 Chapter 4 - Consumer Choice People cant have everything; their choices are always constrained by factors such as time and money. In this chapter we will cover: The budget constraint Shifts in the budget constraint Maximizing Utility Minimizing Expenditure Revealed Preferences 2 The Budget Line In reality, if an individual only consumes 2 goods or services (X and Y), their consumption is affected by 3 exogenous variables: The price of X The price of Y Income 3 Price of x: P x ; Price of y: P y Income: I Total expenditure on basket (X,Y): P x X + P y Y Assume only two goods available: X and Y The Basket is Affordable if total expenditure does not exceed total Income: P X X + P Y Y I 4 The set of baskets that are affordable is the consumers BUDGET SET The BUDGET CONSTRAINT defines the set of baskets that the consumer may purchase given the income available: P x X+P y Y=I The BUDGET LINE is the set of baskets that are just affordable: Y=I/P y-(P x /P y )X 5 Two goods available: X and Y I = $10 P...
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This note was uploaded on 03/14/2009 for the course ECON ECON 281 taught by Professor Priemaza during the Fall '08 term at University of Alberta.

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Econ 281 Chapter4a - 1 Chapter 4 - Consumer Choice People...

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