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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 Demand-people need to decide the quantity of each good to purchase given the current income and prices-goal: maximize utility within BC How to Choose Between Two Goods-if there is no budget constraint, how many slices of pizza and how many cans of coke should you order? Rational Spending Rule-spending 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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