Lecture6 - UtilityMax - Lecture6 UtilityMaximization

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Lecture 6 Utility Maximization Econ 101A: Microeconomic Theory UC Berkeley Spring 2011 Prof. Cristian Santesteban
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Introduction Consumer choice–why do we care? Business care about consumer demand curves because they reveal how much a consumer is willing to pay for a product. Governments care about the response of consumers to different policies. For example, should it help low income families by giving a cash supplement or should it give them food stamps?
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Introduction Theory of consumer behavior assumes the indifference map (or preferences) are exogenous However, a consumer’s preferences can change over time, with age, education, or experience. Preferences can also change as a result of actions designed to influence consumer behavior.
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Introduction Firms often pay huge $$ to influence your preferences through advertising 30 second TV spots on ABC in 2006 during the Steelers and Seahawks game cost between $2.5 million and $2.6 million. Government and interest groups can also influence preferences. Placing a label on a product warning consumers about the dangers of consuming product can have an impact on demand for that product, e.g., cigarettes.
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Budget Constraint
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Shifts in Income or Prices From the equation shown in the description of Figure 8 in the previous slide, we see that an increase in income will increase the vertical intercept and not affect the slope of the line. What about increasing p1, while holding p2 and income constant? Again from the equation we see that this will make the budget line steeper since p1/p2 will become larger.
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Taxes and the Budget Constraint Economic policy often uses tools that affect a consumer’s budget constraint, e.g. taxes.
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This note was uploaded on 01/21/2012 for the course ECON 101a taught by Professor Staff during the Spring '08 term at University of California, Berkeley.

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Lecture6 - UtilityMax - Lecture6 UtilityMaximization

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