1. Goal
    1. maximize satisfaction
  2. Limitations / Constraints
    1. Limited
      1. Time
      2. Money
    2. Budget Constraint
      1. What you can afford due to
        1. Price
        2. Income
      2. Example
        1. Max
          1. Income
          2. $100
          3. He like to
          4. Go to movies
          5. Cost $10 each
          6. Go to concerts
          7. Costs $20 Each
        2. Graph
          1. <html><img src="budget constraint.JPG">
        3. Slope
          1. change y / change x
          2. Change movie / change concerts
        4. Relative Price
          1. P Concerts / Price movies
      3. Change Income
        1. Decrease
          1. Shifts budget line
          2. Right
          3. Graph
          4. <html><img src="changes in budget.JPG">
        2. Increasing Income
          1. Shifts Budget line
          2. Right
        3. Slope
          1. Unchanged
      4. Preferences
        1. People are Rational
          1. They have
          2. Preferences
          3. Consistancy / Transitivity
        2. Options
          1. A+B
          2. A is better than B
          3. B is better than A
          4. A and B are Indifferent
          5. A,B,C
          6. A is better than B
          7. B is better than C
          8. Then A is better than C
        3. Indifference Curve
          1. Shows where max will be just as happy doing a certain ammount of both options
          2. Maximun movies max is willing to trade for a concert
          3. AKA
          4. Marginal Rate of Substitution
          5. Graph
          6. <html><img src="indifference curve.JPG">
          7. Marginal rate of Subsittution
          8. The Slope of the tangent line
          9. Move right allong IC
          10. MRS
          11. Decreases
          12. Graph
          13. <html><img src="indifference map.JPG">
          14. =MRS Y1x
          15. (Px)/(Py)
          16. This is Price ratio
          17. Common IC Graph Mistakes
          18. Sloping Back up \_/
          19. MRS Intersecting
          20. \/
        4. So what will his choice be
          1. Graph
          2. <html><img src="his choice.JPG">
          3. He will use both
          4. Indifference Curve
          5. Marginal Rate of Substitution
          6. Looking at the MRS that is tangent to IC
          7. He will make the optimum choice
          8. All choices have same
          9. Price Ratio
          10. Higher line
          11. Better choice
          12. This will be picked
          13. EX
          14. MRS Y1X
          15. 1=
          16. (px/py) = 2
          17. Px = 2
          18. Py = 1
          19. This means
          20. Can trade
          21. 1 unit of x
          22. for 2 units of y
          23. Therefore
          24. mrs = 1
          25. Optimumly happy
          26. px/py=1/2
          27. px = 1
          28. py= 2
          29. This means
          30. Can trade
          31. 1 unit of y
          32. for 2 units of x
          33. Therefore
          34. MRS = 1
          35. Optimumly happy
      5. Increased income
        1. What happens
          1. Graph
          2. <html><img src="increase income.JPG">
        2. Normal and Inferior goods
          1. Graph
          2. <html><img src="normal and inferior.JPG">
          3. X is Normal
          4. Do more of x
          5. Y is Inferrior
          6. Do less of y
      6. Change in Price
        1. Graph
          1. <html><img src="change in price of good.JPG">
        2. Will demand more of one good
          1. Look at Movies versus Concerts
          2. Price =
          3. 20
          4. # of Concerts Demanded
          5. 3
          6. 10
          7. # of Concerts Demanded
          8. 5
          9. 5
          10. # of Concerts Demanded
          11. 8
          12. Connect these numbers on x,y axis
          13. x =
          14. Number of concerts
          15. y =
          16. Price of Concerts
          17. Results in Demand Curve
        3. Two Effects from change in P
          1. 1
          2. Substitution Effect
          3. Price of Concerts
          4. Goes Down
          5. Concerts
          6. Cheaper than movies
          7. Price concerts / Price Movies
          8. Goes down
          9. Substitute
          10. Concerts
          11. from Movies
          12. Quantity Demanded Goes up
          13. Change in Price
          14. 2
          15. Income Effect
          16. Raised income
          17. Similar to Drop in Price
          18. Concerts
          19. Normal Good
          20. Quantity Demanded
          21. Rises
          22. Inferior Good
          23. Quantity Demanded
          24. Drops
          25. Occurs in Both Changes
          26. Normal Goods
          27. Price Drops
          28. Sub Effect
          29. Quantity Demanded
          30. Rises
          31. Income
          32. Quantity Demanded
          33. Rises
          34. Both Occur
          35. Quantity Demanded
          36. Almost Always
          37. Rises
          38. Price Rises
          39. Sub Effect
          40. Quantity Demanded
          41. Drops
          42. Income
          43. Quantity Demanded
          44. Drops
          45. Both Occur
          46. Quantity Demanded
          47. Almost Always
          48. Drops
          49. Inferior Goods
          50. Price Drops
          51. Sub Effect
          52. Quantity Demanded
          53. Rises
          54. Income
          55. Quantity Demanded
          56. Drops
          57. Both Occur
          58. Quantity Demanded
          59. Almost Always
          60. Drops
          61. Price Rises
          62. Sub Effect
          63. Quantity Demanded
          64. Drops
          65. Income
          66. Quantity Demanded
          67. Rises
          68. Both Occur
          69. Quantity Demanded
          70. Almost Always
          71. Drops
      7. Market Demand Curve
        1. Graph
          1. <html><img src="from individual to market demand.JPG">
        2. First see how much each person will buy
          1. Take those values
          2. add together
          3. Place them all on a graph
          4. Connect
        3. Topic
      8. Extensions
        1. Reality of Indifference Curves
          1. There are really more good than just 2
          2. Not only movies and Concerts
          3. He could watch sports
          4. Lending and Borrowing
          5. Could borrow
          6. Go to more more movies + concerts
          7. Lend
          8. Dont have to spend all money on goods
          9. could save
          10. Uncertainty + Information
          11. Will the concerts Be good?
          12. I need more infor
          13. Buy a CD
          14. Less money for concerts + movies
          15. Altruism
          16. "Satisfaction of others"
          17. Give money to charity
      9. Behavioral Economics
        1. Salience
          1. Credit card companies hiding info in contracts
        2. Preference for Default
          1. Choose what is offered
          2. Default opt in for email
        3. Decision making environment
          1. If i make tables close to ice cream
          2. People will buy ice cream'
        4. Self Binding
          1. PAy to make it illegal to gamble