Transcription of ECON2001 Microeconomics Lecture Notes Term 1
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ECON2001 Microeconomics Lecture Notes Term 1
ECON2001 Lecture NotesECON2001 MicroeconomicsLecture NotesTerm 1 Ian PrestonBudget constraintConsumers purchase goodsqfrom within a budget setBof affordable bun-dles. In the standard model, pricespare constant and total spending has toremain within budgetp q ywhereyis total budget. Maximum affordablequantity of any commodity isy/piand slope qi/ qj|B= pj/piis constantand independent of total practical applications budget constraints are frequently kinked or discon-tinuous as a consequence for example of taxation or non-linear pricing. If theprice of a good rises with the quantity purchased (say because of taxation abovea threshold) then the budget set is convex whereas if it falls (say because of abulk buying discount) then the budget set is not demandsThe consumer s chosen quantities written as a function ofyandpare theMarshallianoruncompensateddemandsq=f( y, p)Consider the effects of changes inyandpon demand for, say, theith good: total budgety the path traced out by demands asyincreases is called theincomeexpansion pathwhereas the graph offi(y, p) as a function ofyiscalled theEngel curve we can summarise dependenc
•Perfect complements u(q 1,q 2) = min[aq 1,bq 2]: Indifference curves are L-shaped with the kinks lying on a ray through the origin of slope a/b. These preferences are homothetic but not quasilinear. 5 Ian Preston, 2007. ECON2001 Lecture Notes •Cobb-Douglas: u(q 1,q 2) = …
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