How much of each product to demand ○ How much labor to supply ○ How much to spend and save ○ Households must make 3 basic decisions: • Budget constraint: the limits imposed on household choices by income, wealth, and product prices • Choice set OR opportunity set: the set of options that is defined and limited by a budget constraint • Separates the combinations of goods and services that are available, given limited income, from those that are not ○ The available options make up the opportunity set ○ Real income: the set of opportunities to purchase real goods and services available to a household as determined by prices and money income ○ (Px) (X) +(Py)(Y)= I, where Px is the price of X, X I the quantity of X consumed, same for Py and Y respectively, and I is the household income ○ BUDGET CONSTRAINT: • Utility: the satisfaction a product yields • Marginal utility: the additional satisfaction gained by the consumption or use of one more unit of a good or service
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This note was uploaded on 01/09/2012 for the course ECON 2106 taught by Professor Minjaesong during the Fall '06 term at Georgia Tech.