1. Economics 180 Lecture 1.1

2. http://econ.ucsb.edu/~pxshap/econ180/ CLASS WEBPAGE

3. Exam Dates January 14Chapters 2 February 11Chapters 3-6 March 9Chapters 7-12 March 17 Final Exam

4. Section I Background Comparative Advantage One Country –Indifference Curves –Budget Constraints Fixed Income and Prices Initial Endowment and Fixed Prices Initial Endowment -- Transformation

5. Notation Home (blank)Foreign (*) Two Products: Food and Clothing –Endowments e F e* F e C e* C –Consumption x F x* F x C x C

6. Preferences Utility Functions Cobb Douglas – Homothetic U = x C  x F 1-  Indifference Curves xFxF xCxC U0U0 U1U1 U2U2 Increasing Utility

7. Budget Constraints Fixed Income and Prices p F x F + p C x C = M  x F =M/p F –(p C /p F )x C M/p F M/p C xFxF xCxC -p C /p F

8. Budget Constraint Initial Endowment and Fixed Prices p F x F + p C x C = p F e F + p C e C  x F =e F /p F –(p C /p F )(x C – e C ) (p F e F +p C e C )/p F (p F e F +p C e C )/p C eCeC eFeF xCxC xFxF -p C /p F

9. Budget Constraint Initial Endowment and Transformation Transformation: One unit of Food can be transformed into k units of Clothing x C = e C – k(x F – e F ) x F = e F – (1/k)(x C – e C ) e F +(1/k)e C e C +ke F -1/k

10. Economics 180 Lecture 1.2

22. 1 * = 75

23. = F/C =