Presentation is loading. Please wait.

Presentation is loading. Please wait.

L05 Choice.

Published byRitva Halonen Modified over 6 years ago

Similar presentations

Presentation on theme: "L05 Choice."— Presentation transcript:

1 L05 Choice

2 Problem: We know Preferences Prices and income We want optimal choice

3 Secrets of Happiness (SOH):
x2 x1

4 Abstract approach In the example we were given
we found demands - two numbers Now we use abstract parameters we find demand functionsNow we 4 types of preferences

5 Abstract Cobb Douglass Function
Cobb Douglass utility functions and are equivalent in terms of preferences

6 Magic (Cobb-Douglass) formula
Parameters:

7 Cobb-Douglas: Summary
Utility function: or Solution: Shares of income

8 A) Let and B) Let and

9 Interior and corner solution

10 Interiority Cobb – Douglass (always interior solution)

11 SOH: Extreme preferences
Perfect Complements (shoes) Perfect substitutes (cheese)

12 Perfect Complements: Problem

13 SOH (Perfect Complements)

14 Perfect Complements (SOH)
Interior or corner solution?

15 Is solution always interior?
Not necessarily Perfect Substitutes Quasilinear

16 Perfect Substitutes:Problem
x2 x1

17 Magic Formula (Substitutes)

Download ppt "L05 Choice."

Similar presentations

Chapter Five Choice. Economic Rationality u The principal behavioral postulate is that a decisionmaker chooses its most preferred alternative from those.

Chapter Five Choice. Economic Rationality u The principal behavioral postulate is that a decisionmaker chooses its most preferred alternative from those.
Choice.

Choice.
Properties of Demand Functions Comparative statics analysis of ordinary demand functions -- the study of how ordinary demands x 1 *(p 1,p 2,m) and x 2.

Properties of Demand Functions Comparative statics analysis of ordinary demand functions -- the study of how ordinary demands x 1 *(p 1,p 2,m) and x 2.
Economic Rationality The principal behavioral postulate is that a decisionmaker chooses its most preferred alternative from those available to it. The.

Economic Rationality The principal behavioral postulate is that a decisionmaker chooses its most preferred alternative from those available to it. The.
Chapter Five Choice. Economic Rationality u The principal behavioral postulate is that a decisionmaker chooses its most preferred alternative from those.

Chapter Five Choice. Economic Rationality u The principal behavioral postulate is that a decisionmaker chooses its most preferred alternative from those.
Chapter Five Choice. Economic Rationality u The principal behavioral postulate is that a decisionmaker chooses its most preferred alternative from those.

Chapter Five Choice. Economic Rationality u The principal behavioral postulate is that a decisionmaker chooses its most preferred alternative from those.
Demand. Consumer Demand Consumer’s demand functions:

Demand. Consumer Demand Consumer’s demand functions:
Choice Continued.

Choice Continued.
L06 Demand. u Model of choice u parameters u Example 1: Cobb Douglass Review.

L06 Demand. u Model of choice u parameters u Example 1: Cobb Douglass Review.
Chapter Five Choice 选择. Structure 5.1 The optimal choice of consumers 5.2 Consumer demand  Interior solution （内解）  Corner solution （角解）  “Kinky” solution.

Chapter Five Choice 选择. Structure 5.1 The optimal choice of consumers 5.2 Consumer demand  Interior solution （内解）  Corner solution （角解）  “Kinky” solution.
Chapter 5 Choice.

Chapter 5 Choice.
Microeconomics Corso E John Hey. Chapter 5 We know that the indifference curves of an individual are given by the preferences of that individual. We know.

Microeconomics Corso E John Hey. Chapter 5 We know that the indifference curves of an individual are given by the preferences of that individual. We know.
Rational Choice. CHOICE 1. Scarcity (income constraint) 2. Tastes (indifference map/utility function)

Rational Choice. CHOICE 1. Scarcity (income constraint) 2. Tastes (indifference map/utility function)
Chapter 5 Choice of consumption.

Chapter 5 Choice of consumption.
Chapter 6 DEMAND. Demand Demand functions  the optimal amounts of each of the goods as a function of the prices and income faced by the consumer. Comparative.

Chapter 6 DEMAND. Demand Demand functions  the optimal amounts of each of the goods as a function of the prices and income faced by the consumer. Comparative.
Frank Cowell: Microeconomics Exercise 4.12 MICROECONOMICS Principles and Analysis Frank Cowell November 2006.

Frank Cowell: Microeconomics Exercise 4.12 MICROECONOMICS Principles and Analysis Frank Cowell November 2006.
Chapter 5 CHOICE.

Chapter 5 CHOICE.
L04 Choice. Big picture u Behavioral Postulate: A decisionmaker chooses its most preferred alternative from the set of affordable alternatives. u Budget.

L04 Choice. Big picture u Behavioral Postulate: A decisionmaker chooses its most preferred alternative from the set of affordable alternatives. u Budget.
RL1 Review. u A decisionmaker chooses its most preferred alternative from the affordable ones. u Budget set u Preferences (Utility) u Choice (Demand)

RL1 Review. u A decisionmaker chooses its most preferred alternative from the affordable ones. u Budget set u Preferences (Utility) u Choice (Demand)
L08 Buying and Selling. u Model of choice u We know preferences and we find demands u Q: Where does the mysterious income come from? u From selling goods.

L08 Buying and Selling. u Model of choice u We know preferences and we find demands u Q: Where does the mysterious income come from? u From selling goods.

Similar presentations

Ads by Google