choice.5

choice.5 - Econ 100A: Choice (Chapter 5) Thomas G. Koch...

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Unformatted text preview: Econ 100A: Choice (Chapter 5) Thomas G. Koch Winter 2009 Thomas G. Koch Choice (5) 1(37) Clickers • Turn on your clicker • Hit a button Thomas G. Koch Choice (5) 2(37) Not just any choice • Trying to find optimal choice • What bundle makes you happiest . . . • among those you can afford. Thomas G. Koch Choice (5) 3(37) Not just any bundle • Bundle that puts you on the highest indifference curve • that is still affordable Thomas G. Koch Choice (5) 4(37) The Consumer Optimization Problem max x 1 , x 2 u ( x 1 , x 2 ) subject to m ≥ p 1 · x 1 + p 2 · x 2 Thomas G. Koch Choice (5) 5(37) With well-behaved preferences Thomas G. Koch Choice (5) 6(37) As it is drawn . . . • Optimal choice: MRS = Relative price • Why relative price matters more Thomas G. Koch Choice (5) 7(37) The intuitive appeal • Sets marginal cost . . . • equal to marginal benefit Thomas G. Koch Choice (5) 8(37) How to solve consumer optimization • If an interior bundle, • and preferences are well-behaved . . ....
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This note was uploaded on 09/12/2011 for the course ECON 100A taught by Professor Babcock during the Winter '07 term at UCSB.

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choice.5 - Econ 100A: Choice (Chapter 5) Thomas G. Koch...

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