Macroeconomics Exam Review 53

Macroeconomics Exam Review 53 - 1.241 Essentially, consumer...

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Unformatted text preview: 1.241 Essentially, consumer theory (in economics) is concerned with predicting the way in which consumer purchases vary with changes in observable parameters such as prices and incomes. Predictions are deduced by assuming that the consumer will consistently choose the best affordable alternative in her budget set. The theory would be empty if there was no such optimal choice. 1.242 1. Let = + . Then is compact and 1 . Define the order x 1 y if and only if 1 ( x ) 1 ( y ). Then 1 is continuous on and 1 = { x : 1 ( x ) 1 ( y ) for every y } is the set of best elements in with respect to the order 1 . By Exercise 1.239, 1 is nonempty and compact. 2. Assume 1 is compact. Define the order x y if and only if ( x ) ( y ). Then is continuous on 1 and = { x 1 : ( x )...
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