Econ100A.Sep18

Econ100A.Sep18 - Consumers Choice Econ 100A - Economic...

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Consumer’s Choice Econ 100A - Economic Analysis - Microeconomics Raphaël Giraud 1 University of Franche-Comté (France) 2 Visiting Assistant Professor at Berkeley University 3 ragiraud@berkeley.edu Raphaël Giraud Intermediate Microeconomics
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Consumer’s Choice ± ² ³ ´ Menu du jour September 18: Consumer Theory: Budget Constraints. Consumer Theory: Consumer’s Choice Demand Functions. Readings: PR3 2,3,4,5 Raphaël Giraud Intermediate Microeconomics
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Consumer’s Choice Outline Constraints on Consumer’s Choice Consumer’s Choice Raphaël Giraud Intermediate Microeconomics
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Consumer’s Choice Introduction For consumer’s choice to be seen as an economic problem, we need to find the constraints that limit it. These constraints are of two kinds: Non-financial Constraints Availability of certain goods at certain periods of time or at certain places, legal constraints, divisibility and non-divisibility, survival constraints,. . . . We shall forget about these constraints this year, although they might affect consumer choice. Financial Constraints Money is usually a scarce ressource; by money we mean purchasing power, defined by how much you can buy given the prices and your income. We shall focus on it for the next few slides. Raphaël Giraud Intermediate Microeconomics
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Consumer’s Choice The Budget Constraint Intuition Given my income or my wealth and the prices of goods, how much of each good can I buy? More precisely, what commodity bundles are affordable given my income and the prices? This is the exact question that the budget constraint formalizes. Raphaël Giraud Intermediate Microeconomics
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Consumer’s Choice The Budget Constraint Definitions Definition (Budget Set) The budget set is the set of all the commodity bundles the consumer can afford, given his or her income and the prices of goods. Let us denote it B . Definition (Budget Constraint) A commodity bundle X is said to satisfy or meet the budget constraint if it belongs to the budget set: X B . Definition (Budget Line or Consumption Possibilities Frontier) The budget line is the set of affordable commodity bundles such that the whole income is spent while purchasing them . It is therefore a subset of B that we shall denote BL . Raphaël Giraud Intermediate Microeconomics
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Consumer’s Choice The Budget Constraint Formalization Formalizing the budget set can be relatively hard when the financial incentives faced by the decision-maker are complex, such as non-linear pricing schemes (for instance price cuts for return customers or for customers that buy large quantities) or discriminatory pricing (lower prices for poorer consumers for instance). We shall consider the most simple case here, the case of competitive budget sets. More subtle cases might be discussed in sections.
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Econ100A.Sep18 - Consumers Choice Econ 100A - Economic...

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