Lecture1_Jan18

# Lecture1_Jan18 - What happens if prices change What is the...

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Econ 100A – Microeconomics Professor Sarah Reynolds Department of Economics University of California, Berkeley Textbook by Thomas Nechyba A Consumer’s Economic Circumstances Chapter 2 - January 18 th , 2011 Economic model = a simplification of reality Two goods Income What bundle of goods can we afford? Budget constraint Graphing – note the intercepts Additional restrictions Budget set vs. Budget line A note on notation x 2 x 1 x 2 x 1

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What is the opportunity cost of x1? x2? (what is the opportunity cost?) Two changes – examine graphically & mathematically: Income changes Prices change p 1 goes up p 2 goes down p 1 2 goes down x 2 x 1 x 2 x 1 x 2 x 1 x 2 x 1
Endogenous income What is the budget set – mathematically & graphically? What happens if our initial endowment changes?

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Unformatted text preview: What happens if prices change? What is the opportunity cost of x1 & x2? Question to ponder: what are you endowed with? x 2 x 1 x 2 x 1 x 2 x 1 \$200 \$180 \$160 \$140 \$120 \$100 \$80 \$60 \$40 \$20 \$20 \$18 \$16 \$14 \$12 \$10 \$8 \$6 \$4 \$2 20 18 16 14 12 10 8 6 4 2 Composite good Kinked budget sets Ice cream is \$4 a pint, but there is a 50% off sale (limit 4). Your income is \$20. Represent the budget set graphically & mathematically Socks cost \$5 a pair, then \$4 after you buy 12. Shoes cost \$20 a pair. Your income is \$100 Represent graphically & mathematically The hardware store has a buy-one-get-one-half-off sale on saws. Normal price of saws is \$40. You have \$180. Represent graphically Pairs of socks Pairs of shoes saws Pints of ice cream...
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Lecture1_Jan18 - What happens if prices change What is the...

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