3 - 1 07/02/07 Economics 1 Lecture 3 Announcements Problem...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 07/02/07 Economics 1 Lecture 3 Announcements Problem Set Due Daves Office Hours (608-1 Evans): Mon: 1-2, 5:30-6:30 Wed: 1-2 Midterm 1: Mon, July 16 th 07/02/07 Economics 1 Lecture 3 Part II: Foundations of Microeconomics 07/02/07 Economics 1 Lecture 3 Chapter 6 Household Behavior and Consumer Choice 07/02/07 Economics 1 Lecture 3 Firm and Household Decisions Households demand goods and services in output markets and supply labor and capital in input markets. 07/02/07 Economics 1 Lecture 3 Assumptions A key assumption in the study of household and firm behavior (for chapters 6-12) is that all input and output markets are perfectly competitive. 07/02/07 Economics 1 Lecture 3 Perfectly Competitive Markets Many (identical) firms, all small relative to the size of the market A homogeneous product Free entry and exit for firms Perfect knowledge for households and firms 2 07/02/07 Economics 1 Lecture 3 Household Choice in Output Markets Every household must make three basic decisions: 1.How much of each product, or output, to demand. 2.How much labor to supply. 3.How much to spend today and how much to save for the future. 07/02/07 Economics 1 Lecture 3 The Budget Constraint The budget constraint refers to the limits imposed on household choices by income, wealth, and product prices. A choice set or opportunity set is the set of options that is defined by a budget constraint. 07/02/07 Economics 1 Lecture 3 The Budget Constraint A budget constraint separates those combinations of goods and services that are available, given limited income, from those that are not. The available combinations make up the opportunity set . 07/02/07 Economics 1 Lecture 3 The Budget Constraint OTHER $350 100 150 200 FOOD AVAILABLE? TOTAL RENT OPTION 100 150 200 $250 $ No 1,200 1,000 D Yes 1,000 700 C Yes 1,000 600 B Yes $1,000 400 A Possible Budget Choices of a Person Earning $1,000 Per Month After Taxes The real cost of a good or service is its opportunity cost , and opportunity cost is determined by relative prices. 07/02/07 Economics 1 Lecture 3 The Budget Constraint This is the budget constraint when income equals $200 dollars per month, the price of jazz club visits is $10 each, and the price of a Thai meal is $20. The OC of a visit to the jazz club is Thai meal. The OC of a Thai meal is 2 visits to the jazz club. One of the possible combinations is 5 Thai meals and 10 Jazz club visits per month. 07/02/07 Economics 1 Lecture 3 The Budget Constraint Point E is unattainable given the current income prices. Point D does not exhaust the entire income available. 3 07/02/07 Economics 1 Lecture 3 Price Change and the Budget Constraint A decrease in the price of Thai meals shifts the budget line outward along the horizontal axis....
View Full Document

This note was uploaded on 03/31/2008 for the course ECON 001 taught by Professor N/a during the Summer '07 term at University of California, Berkeley.

Page1 / 10

3 - 1 07/02/07 Economics 1 Lecture 3 Announcements Problem...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online