Varian_Chapter05_Choice

Varian_Chapter05_Choice - Chapter Five Choice Economic...

Info iconThis preview shows pages 1–29. 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

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

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

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

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

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

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: Chapter Five Choice Economic Rationality The principal behavioral postulate is that a decisionmaker chooses its most preferred alternative from those available to it. The available choices constitute the choice set. How is the most preferred bundle in the choice set located? Rational Constrained Choice x 1 x 2 Rational Constrained Choice x 1 x 2 Utility Rational Constrained Choice Utility x 2 x 1 Rational Constrained Choice x 1 x 2 Utility Rational Constrained Choice Utility x 1 x 2 Rational Constrained Choice Utility x 1 x 2 Rational Constrained Choice Utility x 1 x 2 Rational Constrained Choice Utility x 1 x 2 Rational Constrained Choice Utility x 1 x 2 Affordable, but not the most preferred affordable bundle. Rational Constrained Choice x 1 x 2 Utility Affordable, but not the most preferred affordable bundle. The most preferred of the affordable bundles. Rational Constrained Choice x 1 x 2 Utility Rational Constrained Choice Utility x 1 x 2 Rational Constrained Choice Utility x 1 x 2 Rational Constrained Choice Utility x 1 x 2 Rational Constrained Choice x 1 x 2 Rational Constrained Choice x 1 x 2 Affordable bundles Rational Constrained Choice x 1 x 2 Affordable bundles Rational Constrained Choice x 1 x 2 Affordable bundles More preferred bundles Rational Constrained Choice Affordable bundles x 1 x 2 More preferred bundles Rational Constrained Choice x 1 x 2 x 1 * x 2 * Rational Constrained Choice x 1 x 2 x 1 * x 2 * (x 1 *,x 2 *) is the most preferred affordable bundle. Rational Constrained Choice The most preferred affordable bundle is called the consumers ORDINARY DEMAND at the given prices and budget. Ordinary demands will be denoted by x 1 *(p 1 ,p 2 ,m) and x 2 *(p 1 ,p 2 ,m). Rational Constrained Choice When x 1 * > 0 and x 2 * > 0 the demanded bundle is INTERIOR . If buying (x 1 *,x 2 *) costs $m then the budget is exhausted. Rational Constrained Choice x 1 x 2 x 1 * x 2 * (x 1 *,x 2 *) is interior. (x 1 *,x 2 *) exhausts the budget. Rational Constrained Choice x 1 x 2 x 1 * x 2 * (x 1 *,x 2 *) is interior. (a) (x 1 *,x 2 *) exhausts the budget; p 1 x 1 * + p 2 x 2 * = m. Rational Constrained Choice x 1 x 2 x 1 * x 2 * (x 1 *,x 2 *) is interior ....
View Full Document

Page1 / 74

Varian_Chapter05_Choice - Chapter Five Choice Economic...

This preview shows document pages 1 - 29. Sign up to view the full document.

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