# ch04 - between good x and good y p x x p y y I Quantity of...

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1 Chapter 4 UTILITY MAXIMIZATION AND CHOICE

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2 Our Consumption Choices Our decisions can be divided in two parts We have to determine all available choices, given our income: BUDGET CONSTRAINT Of all the available choices we choose the one that we prefer: PREFERENCES, UTILITY FUNCTIONS, and INDIFFERENCE CURVES
3 The Budget Constraint • If an individual has I dollars to allocate
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Unformatted text preview: between good x and good y p x x + p y y I Quantity of x Quantity of y The individual can afford to choose only combinations of x and y in the shaded triangle If all income is spent on y , this is the amount of y that can be purchased y p I If all income is spent on x , this is the amount of x that can be purchased x p I...
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ch04 - between good x and good y p x x p y y I Quantity of...

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