ECON 1110 Lecture Notes - Lecture 6: Discounting, Pointless, Substitute Good

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Published on 4 Apr 2016
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Chapter 3: The Budget Constraint and the Consumer’s Optimal Choice
budget constraint-
optimal choice, or utility maximizing choice,
subject to his budget constraint
Basic economic problem: 

3.2: the standard budget constraint, the budget set and the budget line

!income, M for money
standard budget constraint/budget constraint
o"#\$
%less than or equal 
&'(')&*(*+,,
Budget set--

o,
Budget line-
."#'*%
o&'(')&*(*/,
0*
o'1*
relative price of good 1
"
(**

('
'
o0
'
*
('
(*.2*
'*
3
&'
(')&*
(*/3
X 2
∆ X 21 =p1
p2
3.3: Shifts of the Budget line
2income changesprices of the goods change
oBudget line MOVES
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