Book contents
- Frontmatter
- Contents
- Preface
- User Guide
- Introduction
- PART I THE THEORY OF CONSUMER BEHAVIOR
- 1.1 Budget Constraint
- 1.2 Satisfaction
- 1.3 Optimal Choice
- 1.4 Comparative Statics
- 1.5 Endowment Model
- 1.6 Bads
- 1.7 Search Theory
- 1.8 Behavioral Economics
- PART II THE THEORY OF THE FIRM
- PART III THE MARKET SYSTEM
- Conclusion
- Index
1.3 - Optimal Choice
from PART I - THE THEORY OF CONSUMER BEHAVIOR
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- Preface
- User Guide
- Introduction
- PART I THE THEORY OF CONSUMER BEHAVIOR
- 1.1 Budget Constraint
- 1.2 Satisfaction
- 1.3 Optimal Choice
- 1.4 Comparative Statics
- 1.5 Endowment Model
- 1.6 Bads
- 1.7 Search Theory
- 1.8 Behavioral Economics
- PART II THE THEORY OF THE FIRM
- PART III THE MARKET SYSTEM
- Conclusion
- Index
Summary
Joseph Louis Lagrange, the greatest mathematician of the eighteenth century, was born at Turin on January 25, 1736, and died at Paris on April 10, 1813.…In appearance he was of medium height, and slightly formed, with pale blue eyes and a colourless complexion. In character he was nervous and timid, he detested controversy, and to avoid it willingly allowed others to take credit for what he had himself done.
W. W. Rouse BallThe budget constraint shows the consumer's possible consumption bundles.
The standard, linear constraint is p1x1 + p2x2 = m.
There are many other situations, such as subsidies and rationing, which give more complicated constraints with kinks and horizontal/vertical segments.
The indifference map shows the consumer's preferences.
The standard situation is a set of convex, downward sloping indifference curves.
There are many alternative preferences, such as perfect substitutes and perfect complements.
Preferences are captured by utility functions, which accurately reflect the shape of the indifference curves.
Our job is to find the combination (or bundle) that maximizes satisfaction (as described by the indifference map or utility function) given the budget constraint. The answer will be in terms of how much the consumer will buy in units of each good.
The optimal solution is depicted by the canonical graph in Figure 1.3.1.1. This canon is not a cannon as in a weapon that fires projectiles. The word canonical is used here to mean standard, conventional, or orthodox.
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- Information
- Intermediate Microeconomics with Microsoft Excel , pp. 37 - 88Publisher: Cambridge University PressPrint publication year: 2009