Topic5_intmicro_optimalchoice_part_1

Topic5_intmicro_optimalchoice_part_1 - TOPIC 5: OPTIMAL...

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Dr. Fidel Gonzalez (SHSU) TOPIC 5: OPTIMAL CHOICE INTERMEDIATE MICROECONOMICS Spring 2011 Dr. Fidel Gonzalez Department of Economics and Intl. Business Sam Houston State University
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The following diagram will help you see what we are doing. The consumer is going to buy the best combinations of goods that she can afford. BEST AFFORD BUDGET PREFERENCES Now we combine utility an budget to obtain the optimal choice of the consumer UTILITY
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OPTIMAL CHOICE At the beginning of the optimal consumer choice theory we said that the main assumption is that “The consumer chooses the best combination of x1 and x2 that she can afford. Now, we are in a position to actually obtain the optimal choice. From the preferences and utility sections we can say that “best” means “highest utility” . That is the consumer will try to obtain the bundle that gives her the highest utility. From the budget section we can now say that “afford” means that the bundle has to be on the budget line (remember not below because income has to be exhausted). Therefore we can now say that: “The consumer chooses the bundle with the highest utility the she can afford” .
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Topic5_intmicro_optimalchoice_part_1 - TOPIC 5: OPTIMAL...

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