Class7 - Econ 100 13 Winter 2012: Professor Bushnell Econ...

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Unformatted text preview: Econ 100 13 Winter 2012: Professor Bushnell Econ 100 Class 7: Constrained Consumer Choice Econ 100 14 Winter 2012: Professor Bushnell Consumer Maximization: Interior Solution • Would Lisa be able to consume any bundle along I 3 (i.e. bundle f )? – No! Lisa does not have enough income to afford any bundle along I 3 B , Bur r itos per semester 10 20 25 50 30 10 Z , Pizzas per semester I 1 I 2 I 3 d f c e a A B Would Lisa be able to consume any bundle along I 1 ? Yes; she could afford bundles d , c , and a . Nevertheless, there are other affordable bundles that should be preferred and affordable. For instance bundle e Bundle e is called a consumer’s optimum. If Lisa is consuming this bundle, she has no incentive to change her behavior by substituting one good for another. Econ 100 15 Winter 2012: Professor Bushnell Consumer Maximization: Interior Solution The budget constraint and the indifference curve have the same slope at the point e where they touch. touch....
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This note was uploaded on 02/01/2012 for the course ECN 100 taught by Professor Parman during the Winter '08 term at UC Davis.

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Class7 - Econ 100 13 Winter 2012: Professor Bushnell Econ...

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