A Modern Approach (8th
by Hal R. Varian
W. W. Norton 2010
About 17 weeks in this semester
Budgetary and Other
Constraints on Choice
Economists assume that consumers
choose the best bundle of goods they can
This chapter first specifies in detail what
consumer can afford: the budget
constraint or the consumpti
Persons often receive income in
lumps; e.g. monthly salary.
How is a lump of income spread over
the following month (saving now for
Or how is consumption financed by
borrowing now a
In previous chapters
From underlying preference or utility
function to consumers demand function
From observed demand behavior to
estimate preferences or utility .
Monetary Measures of
Last chapter we talk about
preference, describing the ordering
of what a consumer likes.
For a more convenient mathematical
treatment, we turn this ordering into
a mathematical function.
Preferences - A
y: x is preferred
Buying and Selling
In the previous chapters, the income
of the consumer was given, in reality
people earn their income by selling
things they own.
In this chapter we will examine how
the earlier model must be modified
so as to de
Last chapter we talk about what is
affordable or feasible to consumers.
This time we talk about
preferences: what the consumer
like more and what they like less.
As a rational agent, a consumer
chooses the option in the budget se
From Individual to
Think of an economy containing n
consumers, denoted by i = 1, ,n.
Consumer is ordinary demand
function for commodity j is
x*j i (p1 , p 2 , mi )
From Individual to
In Chapter 6, we talk about how demand
changes when price and income change
In this chapter, we want to further
analyze how the change in price changes
In particular, we decompose the change
The principal behavioral postulate is
that a decisionmaker chooses its
most preferred alternative from
those available to it.
The available choices constitute the
How is the most preferred bundle in