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Unformatted text preview: 9-2-10Test two weeks from nowoSome short answer questions and problems, maybe some MC but never beforeLast class - discussed framework to incorporate preferencesUtility fxns easier to solve problems and we will incorporate policies using utility fxnsS1:oDidnt talk yet about what is FEASIBLEoWhat theyd likeoWhat can affordoWhat actually purchaseS2oLinear pricesFor every unit you purchase, the price of that unit is constantoLook at two goods food and clothing with $2 and $3 respectively and an income of $30 (available money)oPut what is affordable on the same graph with the preferencesoonce you get two points on the line you can characterize the entire line and get all the pointS3oBudget graphAll clothing is 10 units and no food was simply 30/3All on food and none on clothing is 15 units of foodSlope is -2/3 Reached this by Blue/shaded area is anything that is affordable and feasibleS4oBundle C is not affordable and therefore it is outside the shaded region (not actually shaded this time)S5oTotal spending cant be more than incomeoBudget set was the blue/shaded triangleAffordable bundlesoBudget lineCollection of bundle where consumer spends all their incomeS6oX represents the number of the goodsoSum of P X cant exceed income (I)S7oY intercept means Total income divided by I (income)oslope now in slope intercept formS8oWhy doesnt the line shift? Why is it rotating instead?...
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- Spring '07