中级微观经济学讲义4－效用最大化与选择.pdf

Chapter 4 UTILITY MAXIMIZATION AND CHOICE By WALTER NICHOLSON Slides prepared by Linda Ghent (Eastern Illinois University) Modified by Huihua NIE (Renmin Unversity of China) www.ChinaES. 1 Optimization Principle • To maximize utility, given a fixed amount of income to spend, an individual will buy the goods and services: – Maximization under constraints – 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 market (MRS=P /P ) x y www.ChinaES. 2 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 y = $1 • The individual can be made better off – trade 1 unit of x for 2 units of y in the marketplace – trade generates value www.ChinaES. 3 The Budget Constraint • Assume that an individual has I dollars to allocate between good x and good y p x + p y I →y= I/p -(p /p x x y y x y) Quantity of y If all income is spent I on y, this is the amount The slope of the constraint is –p /p , i.e. MRS py of y that can be purchased x y If all income is spent