Optimal choices with Concave Preferences PDF

Title	Optimal choices with Concave Preferences
Author	Grace Meehan
Course	Microeconomics II
Institution	University of Exeter
Pages	5
File Size	242 KB
File Type	PDF
Total Downloads	96
Total Views	133

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Optimal choices with concave preferences lecture notes...

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Optimal choices with Concave Preferences Wednesday, 20 October 2021

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15:52

Naoki has preferences u(x1, x2) = x12 + x22 He has an income of m. The price of x1 is p1 and the price of x2 is p2 What bundle will Naoki consume?

C

d b

h

i

A?

Consume a extremes, averages

at the not the

Can a consumer do better than point A? Yes, the Tangency Condition is not enough to ensure the consumer is maximising their utility.

→

A consumer with concave preferences will want to consume at the extremes in contrast to averages (point B or C rather than point A)

→ →

This is how to find the optimal choice for concave preferences Consumers with concave preferences will choose good depending on price r

ratio...