Part F | How constraints shape buyers' choices

Part F explores what to do when we can't have everything. We start by connecting Factor Markets and the Labor Market to buyer's income in Final Goods markets, which shapes their Budget Constraint. To understand choices within this constraint, we rank preferences using Utility and map Indifference Curves - like contour lines showing equally preferred combinations of goods. The Consumer's Problem is solved at the highest attainable indifference curve within the budget constraint, where the Marginal Rate of Substitution equals the Marginal Rate of Transformation.

This course maps the economic landscape, starting in Part A with how Opportunity Cost and Specialization create the need for coordination between people - the fundamental challenge that economics must solve. Part B introduced markets as coordination tools, using supply and demand to find equilibrium. Parts C and Part D revealed how markets can fail and when alternative tools are needed. After exploring seller incentives and market power can break markets in Part E, Part F completes our journey by showing how buyer trade-offs shape demand.

Reading

... skim the reading to understand the main ideas before doing practice problems.

Chapter 18: Factor Markets ( )

Chapter 21: Consumer Choice ( )

Vignettes

... small examples done in recitation practicing the concepts we cover in class.

Vignette F1 ( | Solutions )

Vignette F1 is a set of problems we examine in Recitation.

Vignette F2 ( File | Solutions )

Vignette F2 is a set of problems we examine in Recitation.

Homework

... sets of problems you'll do with your study group.

Homework F ( )

Homework F is due on Gradescope on Sunday December 8.

Some FAQs:

  1. In the graph for question 1, show Hagrid's initial budget constraint
  2. For question 2, in the graph below question 1, show Hagrid's optimal consumption bundle on the budget constraint they already drew (using indifference curves), then on the same graph, show how Hagrid’s optimal consumption bundle would change using shifts in budget constraints and indifference curves.
  3. In the graph below question 3, show Hagrid's budget constraint from question 2, then show the shift in the budget constraint on the budget constraint for the same graph.
  4. Show the optimal consumption bundles (using indifference curves) on the budget constraints

MiniExam and Demo

You will begin to learn that if you understand the concepts and do the work in the Vignettes, Homework, and Demo, you're going to be in good shape on the MiniExam.

MiniExam F

... covers everything in Part F and will be held during finals week on Thursday December 12 at 2:00 PM if you're in the 10AM section or at 3:00 PM if you're in the 11AM section.

MiniExam Z

... covers everything from the semester and will be held after a 5 minute break after MiniExam F during the final exam period.

Demo F1 ( | Solutions )

Note: this demo is a bit difficult so focus on Vignette F2.

A change in the labor market

Demo F2 ( | Solutions )

Note: this demo is a bit difficult so focus on Vignette F2.

A change tech and a tax

Demo Z ( )

A bird's eye view of the semester.