Chapter Five - SSCC

Chapter Five - SSCC

L05 Choice Problem: We know Preferences U ( x 1 , x 2 ) ln x 1 ln x 2 Prices and income p 1 1 , p 2 1 , m We want optimal choice

* 1 * 2 (x , x ) 1 0 Secrets of Happiness (SOH): x2

x1 Abstract approach In the example we were given U ( x 1 , x 2 ) ln x 1 ln x 2 p 1 1, p 2 1, m 1 0 we found demands - two numbers

x1 5 , x 2 5 Now we use abstract parameters p1 , p 2 , m U ( x , x

) 1 2 we find demand functionsNow we 4 types xof 1 ( ppreferences 1, p2 , m ) x 2 ( p1 , p 2 , m ) Abstract Cobb Douglass Function

Cobb Douglass utility functions and a 1 U ( x1 , x 2 ) x x b 2 V ( x 1 , x 2 ) ln U ( x 1 , x 2 )

are equivalent in terms of preferences Magic (Cobb-Douglass) formula U ( x 1 , x 2 ) a ln x 1 b ln x 2 Parameters: a , b , p 1 , p 2 , m p1 , p 2 , m Cobb-Douglas: Summary a b V a

ln x b ln x U x Utility function: 1 2 or 1 x2

Solution: a m b m * * x1 , x2 a b p1 a b p2 Shares of income A) Let U x

0 .5 1 x * 1 1 0 .5 2 and p 1 2 , p 2 4 , m 4 0

* 2 p x , p2x * 1 * 2

x ,x 10 1 B) Let U x x 20 2 and p 1 1 0 , p 2 1 0 , m 9 0 0

p 1 x 1* , p 2 x 2* x 1* , x 2* Interior and corner solution Interiority Cobb Douglass (always interior solution)

a m x , a b p1 * 1 b m x a b p2 * 2

SOH: Extreme preferences Perfect Complements (shoes) Perfect substitutes (cheese) Troublemakers

Perfect complements Right and left shoe Perfect complements Coffee and 2 teaspoons of sugar Perfect Complements: Problem U ( x 1 , x 2 ) m in( x 1 , x 2 ) p 1 1, p 2 1, m 1 0

SOH (Perfect Complements) U ( x 1 , x 2 ) min( 2 x 1 , x 2 ) p 1 1, p 2 1, m 1 0 Perfect Complements (SOH) U ( x 1 , x 2 ) m in( a x 1 , b x 2 ) nterior or corner solution? p1 , p 2 , m Is solution always interior?

Not necessarily Perfect Substitutes Quasilinear Perfect Substitutes:Problem U ( x1 , x 2 ) x1 x 2

p 1 1, p 2 2 , m 1 0 x2 x1 Magic Formula (Substitutes) U ( x1 , x 2 ) a x1 b x 2 p1 , p 2 , m

Recently Viewed Presentations

  • Kitchen Safety - mrssinnaevesclasses.weebly.com

    Kitchen Safety - mrssinnaevesclasses.weebly.com

    Most fires start in the kitchen than any other place in the house. Cooking fires are the #1 cause of home fires and home fire injuries. One person is either burned or scalded every 25 seconds in the USA. There...
  • Cybersecurity & Privacy challenges And what Communities can

    Cybersecurity & Privacy challenges And what Communities can

    General Data ProtectionRegulation (GDPR) Upon data gathering the subject should be informed about a.o.: Contact information about controller and data protection officer. Purpose of the processing and legal basis for processing and if applicable the legitimate interests pursued. Retention period(s)...
  • Clinical Validation: A Denials Perspective

    Clinical Validation: A Denials Perspective

    Clinical criteria and code assignment ICD-10-CM/PCS Coding Clinic, Fourth Quarter ICD-10 2016 Pages: 147-149. The guideline noted addresses coding, not clinical validation. It is appropriate for facilities to ensure that documentation is complete, accurate, and appropriately reflects the patient's clinical...
  • www.moedu-sail.org

    www.moedu-sail.org

    Hidden Slide #4. Handouts needed: Pre-reading, Dufour, R., Dufour, R., & Eaker, R. (2007). The case for common formative assessments. Retrieved from: www.allthingsplc ...
  • שקופית 1 - מת"ל

    שקופית 1 - מת"ל

    אתרי מתמטיקה באינטרנט לפניכם מספר אתרים מעניינים ללימוד מתמטיקה תוך כדי משחק ותרגול.
  • Why we gotta know how to cover sports

    Why we gotta know how to cover sports

    Most of what you'll write are game stories: West Florida Christian vs Miami Heat, Tampa Bay Buccaneers vs Riverview, Sarasota Scullersregatta, Eddie Herr tennis tournament, FHSAA golf tournament, spring training games. Game stories are news reports about who won and...
  • Tell Aaron and his sons, This is how

    Tell Aaron and his sons, This is how

    The god of this age has blinded the minds of unbelievers, so that they cannot see the light of the gospel of the glory of Christ, who is the image of God. For God, who said, "Let light shine out...
  • TKaM Ch. 14-17 10/29-11/2

    TKaM Ch. 14-17 10/29-11/2

    Themes. What themes are currently present in . To Kill a Mockingbird? In the two common lit articles we have read this week are there any similarities with the TKaM themes? Explain. Happy Friday! Bell Work 11/2. 1.