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
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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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