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Hal R. Varian. Intermediate Microeconomics, A Modern Approach. W. W. Norton & Company, Inc.


Consumer theory ---- how consumers buy their goods?
Economists assume: consumers choose the best bundle of goods they can afford. Two aspects:
----Consumers choose the most preferred goods.
----They are limited by economic condition.

The Budget Constraint
Consumption bundles: (消费束,商品组合): a list of numbers of goods and services. X = (x1, x2, …, xn,)
In the case of two goods: good 1 and good 2.
Bundle of goods: X = (x1, x2)
Prices of goods: (p1, p2),
The amount of money the consumer has to spend: m.
The consumer’s affordable consumption bundles, (x1, x2) satisfy p1x1 + p2x2 ≤ m.
----The budget set of the consumer (预算集) .

good 2


O m/p1 good 1

Two Goods Are Often Enough
Composite good ----take x2 as everything else, the dollars spent on other goods. For example, x1: consumption of milk in quarts per month. The budget constraint will take the form
p1x1 + x2 ≤ m.

The case of n goods
Budget constraint:
p1x1 + p2x2+…+ pnxn ≤ m.

Properties of the Budget Set
Budget line(预算线):
p1x1 + p2x2 = m.
Vertical intercept: m/p2
Horizontal intercept: m/p1.
Slope: – p1/p2
Economic interpretation of slope:
For the bundle (x1, x2):
p1x1 + p2x2 = m.
After a change in bundle (△x1, △x2):
p1(x1+△x1) + p2(x2+△x2) = m.

good 2


O x1 good 1

Subtracting the first equation from the second gives
p1△x1 +...
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