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.
Vignettes
... small examples done in recitation practicing the concepts we cover in class.
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:
- In the graph for question 1, show Hagrid's initial budget constraint
- 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.
- 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.
- 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.