Rational Constrained Choice (Xy* x2 )is interior. (a(x,*, x2 )exhausts the budget; p,X,*+ p2X2= m X1
Rational Constrained Choice x1 x2 x1 * x2 * (x1 *,x2 *) is interior. (a) (x1 *,x2 *) exhausts the budget; p1x1 * + p2x2 * = m
Rational Constrained Choice (X,*, x2 )is interior (b The slope of the indiff curve at(x,", X2 )equals the slope of the budget constraint X1
Rational Constrained Choice x1 x2 x1 * x2 * (x1 *,x2 *) is interior . (b) The slope of the indiff. curve at (x1 *,x2 *) equals the slope of the budget constraint
Rational constrained choice (x,*, x2*)satisfies two conditions (a the budget is exhausted; p11+p2X2=m (b the slope of the budget constraint, p1/p2, and the slope of the indifference curve containing (X,*, X2 * are equal at (X,, X2
Rational Constrained Choice (x1 *,x2 *) satisfies two conditions: (a) the budget is exhausted; p1x1 * + p2x2 * = m (b) the slope of the budget constraint, -p1 /p2 , and the slope of the indifference curve containing (x1 *,x2 *) are equal at (x1 *,x2 *)
Computing Ordinary demands a Cobb-Douglas Example Suppose that the consumer has Cobb-Douglas preferences. U(x1,X2)=X1x2
Computing Ordinary Demands - a Cobb-Douglas Example. Suppose that the consumer has Cobb-Douglas preferences. U x x x x a b ( , ) 1 2 = 1 2
Computing Ordinary demands a Cobb-Douglas Example Suppose that the consumer has Cobb-Douglas preferences. U(x1, x2)=xix Then MU- OU ax1 X ox1 Ox2bx月x21 MU,=列U
Computing Ordinary Demands - a Cobb-Douglas Example. Suppose that the consumer has Cobb-Douglas preferences. Then U x x x x a b ( , ) 1 2 = 1 2 MU U x ax x a b 1 1 1 1 = = 2 − MU U x bx x a b 2 2 1 2 1 = = −