Microeconomics II Term 1 (BEE2025)

Micro Economics If
Term 1

,E-BudgetSets
choice
Theory of consumer Theory of
=




"Can afford" Budget sets "best"
>
-
->
preferences
·


consumption sets and bundles - 2
goods infinitely divisible
,




RIJ- set of 2
+
Pede
(x x) P,,
= M
x e


>de
=

,


amount potential m
PM
↑ ↑
of bundles
amount of good B
>

goodIt

set
- slope =

-it
Budget > x
relative price of goods
,
,


- ,




2
opportunity cost
prices &
B =
fxtR : P ,
x
,
+
Pe = M
↓
Income

income
of good I m
:
P: price
p C + Pete
, M
Pc price of good
, =
: 2

, -
x2

=-

-
x Tax x:
charge an
ad-valorem

% of units

8
tux
suppose p, t so
of 2 bought
above
Pi =
P, 50
(P1x, + PeREM)
xz
If
-
·
x :

suppose my so
A
P, , + Pe =M




·
· Pr
Ff , :

-
·




m' = M


budget PT P (I + El(x -
+

increase
,
in , .
,
·

+
PeEM
line with

gradient

incl
same
-




per unit tax :
p, =
P .
+ Y

* P +
p (I +)x-
ad-valorem
=



p (1
.




/P.
: =
. + so :

P (1 + 2)
P (1 + 2)x
.



taxes Pi
,


Lump
+ =
Sum : m = m -

T
.



=
P (H +
. +(x ,
-



PECT m + PT , ,

, p
+
m +

Budget line gets
.



FfC =
,
0 x
,
=
!
·




P(1 + 1)
sleeper when tax

= m +
p ,
ECT ,
= m(1 + 4) kicks in


-
Pi
= Vorchers


t specific amount
M
↳ a
gov




F
-r
gives to a
consumer which
- only be spent
not affordable may on one


bundles when good Consider roucher worth
cosed
,
a


is im
tax v = o for good,
73)
non-linear
approach
,
M
↳ similar to
↑P
i ,



- taxes


P