chapter 4 Flashcards
(9 cards)
1
Q
optimal choice
A
max utility, within budget constraint
located on budget line
2
Q
budget line
A
Px x X + PY x Y = I
where consumer spends all income
3
Q
optimal choice formula ish
A
maxU(xy) s.t. Px x X + Py x y = I
4
Q
optimal condition formula for tangecy condition
A
MRSxy = Px/ Py = MUx / MUy
and use budget line formula
5
Q
bang for buck
A
MUx / Px > MUy/ Py spend more money on x than y
6
Q
linear utility ( perf subs) what it looks like before…
A
U(xy) = ax + by
7
Q
linear utility ( perf subs) after
A
MUx = a MUy = b
MUx/ Px = a / Px same for MUy
if one is greater than the other, must spend all on one and other is 0 ( I / Px or PY)
8
Q
cobb douglas formula
A
U(xy) = xa yb
9
Q
MRS for cobb
A
MRSxy = ay/ bx = Px/ Py
