Handout1 Representative consummer problem

Handout1 Representative consummer problem - University of...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
University of Minnesota Department of Economics Handout 1 (Last revised: September 23) In this handout I would like to go in more detail into the ups and downs of Chapter 4. be analyzed later on . .. 1 The representative consumer±s problem In class we described the representative consumer±s optimization problem as maximizing some utility function U ( C;‘ ) subject to the budget constraint C = w ( h ) + T: We would certainly like to have C ± 0 . (What would a negative consumption mean, anyway?) Also, we have to abide by the restriction 0 ² ² h . Formally, our optimization problem is: max C;‘ U ( C;‘ ) (1) subject to C = w ( h ) + T C ± 0 0 ² ² h: 1
Background image of page 1

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

View Full DocumentRight Arrow Icon
Note that (1) is a standard optimization problem. We usually consider Cobb-Douglas functional forms to represent the utility function. To characterize the solution, we know that at an optimum, the marginal rate of substi-
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/10/2010 for the course ECON 3101 taught by Professor Staff during the Spring '08 term at Minnesota.

Page1 / 4

Handout1 Representative consummer problem - University of...

This preview shows document pages 1 - 3. Sign up to view the full document.

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