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Optimal Bundle - Microeconomics - Lecture Notes

Lecture Notes, Microeconomics

Post: September 25th, 2013
Description
Lecture Handout/Notes for Microeconomics course. This course is basic course of Economics and explains variety of topics related to the filed. This lecture handout is about: Optimal Bundle, Dissecting Marginal Rate of Substitution, Revealed Preference, Diminishing Mrs, Indiference Curves, Marginal Rate, Budget Line, Optimal Bundle
Lecture Handout/Notes for Microeconomics course. This course is basic course of Economics and explains variety of topics related to the filed. This lecture handout is about: Optimal Bundle, Dissecting Marginal Rate of Substitution, Revealed Preference, Diminishing Mrs, Indiference Curves, Marginal Rate, Budget Line, Optimal Bundle
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Contents
Section Notes 5, Econ 100A Spring ’06 1 Section Notes 5 Covering material from Lecture on January 26th Class Outline 1. The Optimal Bundle 2. Dissecting Marginal Rate of Substitution 3. Revealed Preference 4. Practice Problems Ch. 3.3-3.6, pg: 83-101 1 The Optimal Bundle To help our intuition, we now look at optimal bundles with different types of preferences and a standard budget constraint. Remember our assumptions about consumer preferences and assume diminishing MRS for the top two graphs. Diminishing MRS (internal solution) 6 Diminishing MRS (corner solution) 6 - 6 - 6 - - Section Notes 5, Econ 100A Spring ’06 2 2 Dissecting Marginal Rate of Substitution For the optimal bundles with diminishing MRS you should note the important graphical difference between those at “internal” versus “corner” solutions. Remember, indiference curves and MRS are determined entirely by the specific utility function in question. Let’s now look into that relationship ..

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