ECON 2P21 Lecture Notes - Ope
7 Mar 2014
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Rational constrained choice: when x1* > 0 and x2* > 0 and (x1*,x2*) exhausts the budget, and (x1 ,x2 ) exhausts the budget, and indifference curves have no. Kinks", the ordinary demands are obtained l b by solving: (a) p1x1* + p2x2* = y (b) the slopes of the budget constraint, p1/p2, and of the indifference curve containing (x1*,x2*) are equal at (x * x *) are equal at (x1*,x2*). But what if x1 = 0: or if x2* = 0, if either x1* = 0 or x2* = 0 then the ordinary f demand (x1*,x2*) is at a corner solution to the problem of maximizing utility subject to a budget constraint. * 0 h bj i h bl di f i i i ili. Slope = -p1/p2 with p1 > p2. x1x1. Slope = -p1/p2 with p1 > p2. x x1. Slope = -p1/p2 with p1 < p2. x2.
