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Unformatted text preview: # pizzas # coke 4 2 3 1 X1 = # pizza X2 = # coke $2 x X1 + $1 x X2 </ $10 BC Determine Demandpeople need to decide the quantity of each good to purchase given the current income and pricesgoal: maximize utility within BC How to Choose Between Two Goodsif there is no budget constraint, how many slices of pizza and how many cans of coke should you order? Rational Spending Rulespending should be allocated across goods so that the MU per dollar is the same for each good CB principle: select all where MB > MC up to where MB = MC, but never choose where MB < MC Utility Maximization: MB of product X in the MU per dollar spent on product X MB of x = MU of x / P of x MC of product x in the MU you are not receiving from a dollars worth of your next best alternative (product y) MC of x = MU of y / P of y...
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 Fall '08
 TANG
 Microeconomics, Utility

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