Economics 2261A/B Lecture Notes - Budget Constraint
11 Feb 2014
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Document Summary
Economics is the science of interactive reasoning one"s decision responds to others" decisions. It"s like a game of chess your move is based upon your opponent"s move, and your opponent"s perception of your move. Science uses math, comprises of empirical research, do experiments. We focus on one"s decision, and set aside others" decisions. Competitive market: a decision maker has no influence on market prices. Imagine in a very simple world, that a decision maker can only choose 2 commodities to consume: good 1 and good 2. Good 1, price = p1 (dollars/unit of good 1) Good 2, price = p2 (dollars/unit of good 2) Our decision maker (we will use a consumer as an example) is given m dollars (money income) *we assume that the price is fixed and non-negotiable. Precisely, that means, we are choosing a pair of numbers. Let x1 = the quantity of good 1 to consume.
