Ch5 - Chapter Five Choice Economic Rationality The...

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Chapter Five Choice
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Economic Rationality The principal behavioral postulate is that a decisionmaker chooses its most preferred alternative from those available to it. The available choices constitute the choice set. How is the most preferred bundle in the choice set located?
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Rational Constrained Choice x 1 x 2
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Rational Constrained Choice x 1 x 2 Utility
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Rational Constrained Choice Utility x 2 x 1
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Rational Constrained Choice x 1 x 2 Utility
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Rational Constrained Choice Utility x 1 x 2
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Rational Constrained Choice Utility x 1 x 2
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Rational Constrained Choice Utility x 1 x 2
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Rational Constrained Choice Utility x 1 x 2
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Rational Constrained Choice Utility x 1 x 2 Affordable, but not the most preferred affordable bundle.
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Rational Constrained Choice x 1 x 2 Utility Affordable, but not the most preferred affordable bundle. The most preferred of the affordable bundles.
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Rational Constrained Choice x 1 x 2 Utility
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Rational Constrained Choice Utility x 1 x 2
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Rational Constrained Choice Utility x 1 x 2
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Rational Constrained Choice Utility x 1 x 2
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Rational Constrained Choice x 1 x 2
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Rational Constrained Choice x 1 x 2 Affordable bundles
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Rational Constrained Choice x 1 x 2 Affordable bundles
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Rational Constrained Choice x 1 x 2 Affordable bundles More preferred bundles
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Rational Constrained Choice Affordable bundles x 1 x 2 More preferred bundles
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Rational Constrained Choice x 1 x 2 x 1 * x 2 *
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Rational Constrained Choice x 1 x 2 x 1 * x 2 * (x 1 *,x 2 *) is the most preferred affordable bundle.
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Rational Constrained Choice The most preferred affordable bundle is called the consumer’s ORDINARY DEMAND at the given prices and budget. Ordinary demands will be denoted by x 1 *(p 1 ,p 2 ,m) and x 2 *(p 1 ,p 2 ,m).
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Rational Constrained Choice When x 1 * > 0 and x 2 * > 0 the demanded bundle is INTERIOR . If buying (x 1 *,x 2 *) costs $m then the budget is exhausted.
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Rational Constrained Choice x 1 x 2 x 1 * x 2 * (x 1 *,x 2 *) is interior. (x 1 *,x 2 *) exhausts the budget.
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Rational Constrained Choice x 1 x 2 x 1 * x 2 * (x 1 *,x 2 *) is interior. (a) (x 1 *,x 2 *) exhausts the budget; p 1 x 1 * + p 2 x 2 * = m.
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Rational Constrained Choice x 1 x 2 x 1 * x 2 * (x 1 *,x 2 *) is interior .
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Ch5 - Chapter Five Choice Economic Rationality The...

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