ECON483 Lecture Notes - Lecture 2: Indirect Utility Function, Indifference Curve
Document Summary
Lecture 2 (jan. 8) location of firms and households (brueckner ch. 11) Housing prices no longer may be a perfect indicator of the desirability of a location since incomes are varying as well. 11. 2. 1 consumer analysis: consumer utility depended on consumption of bread and housing, denoted by c and q. When the focus is extended to include urban amenities, the utility function also depends on an amenity variable, denoted by a. The utility level they achieve will depend on the income they earn (y), on the price they pay per square foot of housing (p), and on the amenity level. This dependence is summarized in an (cid:862)i(cid:374)di(cid:396)e(cid:272)t utility function,(cid:863) written as v (y, p, a): a fundamental equilibrium requirement is that consumers be equally well off in all locations. If this requirement did not hold, consumers would move to locations offering higher utility, bidding up housing prices or pushing down incomes until utilities are equalized everywhere.
