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ch4-UTILITY MAXIMIZATION AND CHOIC(微观经济学-( 南开大学 Lee, Junqing)).ppt

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ch4-UTILITY MAXIMIZATION AND CHOIC(微观经济学-( 南开大学 Lee, Junqing))

Chapter 4 UTILITY MAXIMIZATION AND CHOICE Contents The Budget Constraint The Maximum Utility under Budget Constraint Types of Optimal Solution Indirect Utility Function Expenditure Minimization and Expenditure Function Complaints about the Economic Approach No real individuals make the kinds of “lightning calculations” required for utility maximization The utility-maximization model predicts many aspects of behavior Thus, economists assume that people behave as if they made such calculations Complaints about the Economic Approach The economic model of choice is extremely selfish because no one has solely self-centered goals Nothing in the utility-maximization model prevents individuals from deriving satisfaction from “doing good” Optimization Principle To maximize utility, given a fixed amount of income to spend, an individual will buy the goods and services: that exhaust his or her total income for which the psychic rate of trade-off between any goods (the MRS) is equal to the rate at which goods can be traded for one another in the marketplace A Numerical Illustration Assume that the individual’s MRS = 1 willing to trade one unit of x for one unit of y Suppose the price of x = $2 and the price of y = $1 The individual can be made better off trade 1 unit of x for 2 units of y in the marketplace The Budget Constraint The Budget Constraint The Budget Constraint: two goods Effects of increase in income Effect of decrease in price An example of price change :sale taxes An example of price change :sale taxes An example of price change :quantity-based prices An example of price change :quantity-based prices Budget constraints/ An example of a budget set with rationing The Maximum Utility under Budget Constraint First-Order Conditions for a Maximum We can add the individual’s utility map to show the utility-maximization process First-Order Conditions for a Maximum Utility is maximized where the indifference curve is tangent to the budget constraint Second-Order Cond