Microeconomics Theory: Lecture Objectives
KENYATTA UNIVERSITY
INSTITUTE OF OPEN DISTANCE & e-LEARNING
IN COLLABORATION WITH
SCHOOL OF ECONOMICS
DEPARTMENT 0F ECONOMIC THEORY
EET 200: MICROECONOMICS THEORY II
Copyright © Kenyatta University, 2011
All Rights Reserved
Published By:
KENYATTA UNIVERSITY PRESS
INTRODUCTION
OBJECTIVES
TABLE OF CONTENTS
CONSUMER THEORY
LECTURE ONE.
LECTURE OBJECTIVES
In your elementary microeconomics, the basic principles of consumer behaviour were introduced by laying a strong foundation on the theory of demand on which premise the consumer behaviour is build upon. The consumer behaviour is introduced as a utility maximising behaviour but subject to consumer’s ability to purchase. A consumer is portrayed as an agent who goes for the best that he/she can afford.
In the intermediate level we describe more precisely what we mean by ‘best’ and ‘I can afford’. In the first section, we will examine how to describe what a consumer can afford; the next section will focus on the concept of how the consumer determines what is best. We will then be able to undertake a detailed study of the implications of this simple mode of consumer behaviour. The Budget Constraint
Suppose that there is some set of goods from which the consumer can choose. In real life there are many goods to consume but we will consider two.
Let the consumer’s consumption bundle be where , represents the number of units the consumer chooses of good 1 and is the number of units of good to be chosen by the consumer.
Let and represent the unit prices for the two goods respectively; and M to represent the amount of money the consumer has to spend.
The budget constraint of the consumer can be written as:
Where P1 X1 is expenditure for good 1 and is expenditure on good 2.
The budget
INSTITUTE OF OPEN DISTANCE & e-LEARNING
IN COLLABORATION WITH
SCHOOL OF ECONOMICS
DEPARTMENT 0F ECONOMIC THEORY
EET 200: MICROECONOMICS THEORY II
Copyright © Kenyatta University, 2011
All Rights Reserved
Published By:
KENYATTA UNIVERSITY PRESS
INTRODUCTION
OBJECTIVES
TABLE OF CONTENTS
CONSUMER THEORY
LECTURE ONE.
LECTURE OBJECTIVES
In your elementary microeconomics, the basic principles of consumer behaviour were introduced by laying a strong foundation on the theory of demand on which premise the consumer behaviour is build upon. The consumer behaviour is introduced as a utility maximising behaviour but subject to consumer’s ability to purchase. A consumer is portrayed as an agent who goes for the best that he/she can afford.
In the intermediate level we describe more precisely what we mean by ‘best’ and ‘I can afford’. In the first section, we will examine how to describe what a consumer can afford; the next section will focus on the concept of how the consumer determines what is best. We will then be able to undertake a detailed study of the implications of this simple mode of consumer behaviour. The Budget Constraint
Suppose that there is some set of goods from which the consumer can choose. In real life there are many goods to consume but we will consider two.
Let the consumer’s consumption bundle be where , represents the number of units the consumer chooses of good 1 and is the number of units of good to be chosen by the consumer.
Let and represent the unit prices for the two goods respectively; and M to represent the amount of money the consumer has to spend.
The budget constraint of the consumer can be written as:
Where P1 X1 is expenditure for good 1 and is expenditure on good 2.
The budget
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