penn101_09s1

# penn101_09s1 - Budget Constraint Prefereces Econ 101...

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Budget Constraint Prefereces Econ 101: Intermediate Microeconomics Consumer Theory I: How Does a Consumer Choose? Part 1 Jing Li Department of Economics University of Pennsylvania January 19, 2009 Jing Li Intermediate Microeconomics

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Budget Constraint Prefereces Budget Set Changes in the Budget Constraint How does a consumer choose? Choose what one likes the best given what one can afford. Purposeful behavior: get the bundle one prefers the most Scarce resources: affordability The math: Maximizes preferences/utilities; Budget constraint. Jing Li Intermediate Microeconomics
Budget Constraint Prefereces Budget Set Changes in the Budget Constraint How does a consumer choose? Choose what one likes the best given what one can afford. Purposeful behavior: get the bundle one prefers the most Scarce resources: affordability The math: Maximizes preferences/utilities; Budget constraint. Jing Li Intermediate Microeconomics

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Budget Constraint Prefereces Budget Set Changes in the Budget Constraint Budget set in a 2-good economy with money Two goods: 1 and 2 the amount of goods: x 1 , x 2 Key elements: Money: m Price for good 1: p 1 Price for good 2: p 2 Budget set: what the consumer can afford. The set of ( x 1 , x 2 ) that satisfies: p 1 x 1 |{z} money spent on good 1 + p 2 x 2 |{z} money spent on good 2 m Budget line: what the consumer can buy by spending all the money. The set of ( x 1 , x 2 ) that satisfies: p 1 x 1 + p 2 x 2 = m Jing Li Intermediate Microeconomics
Budget Constraint Prefereces Budget Set Changes in the Budget Constraint Budget set in a 2-good economy with money Two goods: 1 and 2 the amount of goods: x 1 , x 2 Key elements: Money: m Price for good 1: p 1 Price for good 2: p 2 Budget set: what the consumer can afford. The set of ( x 1 , x 2 ) that satisfies: p 1 x 1 |{z} money spent on good 1 + p 2 x 2 |{z} money spent on good 2 m Budget line: what the consumer can buy by spending all the money. The set of ( x 1 , x 2 ) that satisfies: p 1 x 1 + p 2 x 2 = m Jing Li Intermediate Microeconomics

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Budget Constraint Prefereces Budget Set Changes in the Budget Constraint Budget set in a 2-good economy with money Two goods: 1 and 2 the amount of goods: x 1 , x 2 Key elements: Money: m Price for good 1: p 1 Price for good 2: p 2 Budget set: what the consumer can afford. The set of ( x 1 , x 2 ) that satisfies: p 1 x 1 |{z} money spent on good 1 + p 2 x 2 |{z} money spent on good 2 m Budget line: what the consumer can buy by spending all the money. The set of ( x 1 , x 2 ) that satisfies: p 1 x 1 + p 2 x 2 = m Jing Li Intermediate Microeconomics
Budget Constraint Prefereces Budget Set Changes in the Budget Constraint Budget set in a 2-good economy with money Two goods: 1 and 2 the amount of goods: x 1 , x 2 Key elements: Money: m Price for good 1: p 1 Price for good 2: p 2 Budget set: what the consumer can afford.

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