中级微观经济学_Ch5.pptxVIP

Chapter 5 Choice1 Structure of Chapter 525.1 The optimal choice of consumers? 5.1.1 Interior solution（内解）? 5.1.2 Corner solution（角解）? 5.1.3 “Kinky” solution（拐点解）5.2 Consumer’s demand function 5.3 Application of consumer theory: Choosing taxes 5.1 The Optimal Choice of Consumers3 Consumer’s problem: maximizing utility subject to the budget constraint (Utility maximization problem). The Optimal Choicex1x2x1*4x2*x* Properties of the Optimal Choice5The optimal choice:Must be on the budget line, why?Must be on the highest indifference curve that touches the budget line. 5.1.1. Interior Solutions6 Interior solutions: If all xi* 0, xi* are interior solutions. In the case of two goods, the optimal choice involves consuming some of both goods, i.e., x1* 0 and x2* 0. Two equilibrium conditions for interior solutions, (x1*,x2*) :? Budget condition? Tangent condition Condition 1: the Budget Is Exhaustex1x2x1*7x2*(1) p1x1* + p2x2* = m. Condition 2: Tangent Conditionx1x2x1*8(2) The slope of the indifference curve at(x1*,x2*) equals the slope of the budget constraint.x2* MU1/P1 or MU2/P2 : Marginal utiltiy per dolla of expenditure. Equal marginal principle: Utility is maximized when the consumer hasequalized the marginal utility per dollar sp on all goods.Why is this an equilibrium?9Equal Marginal Principle Disequilibrium PointDisequilibriumx210x1X1*X’1EquilibriumX’2X2*U2 U1 Solving for Interior Solution (method 1)11(x1*,x2*) satisfies two conditions:(1) Budget constraint: p1x1* + p2x2* = m(2) Tangency: MU1/MU2= P1/P2Solving these conditions simultaneously you can get the interior solutions. Solving for Interior Solution (method 2)12 The conditions may be obtained by using the Lagrangian multiplier method, i.e., constrained optimization in calculus.How to do it? see supplement. 5.1.2 Corner Solutions13 If some of the xi* = 0, then we say there are corner solutions. In the case of two goods, if either x1* = 0 or x2* = 0, then the ordinary demand (x1*,x2*) is at a corner solut