Chapter 9 Buying and Selling

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Chapter 9Buying and Selling
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Maximization Program

• Max U(x1, x2)
• Subject to p1x1p2x2 p1x10 p 2x20
• Endowment, price ratio, and U jointly determine
  whether you will be acting as a seller or a buyer.

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Factors affecting the budget line

• Endowment (shifting the budget line without
  changing the slope). It produces an income
  effect.
• Prices (rotating the budget line around the
  endowment point). It produces both substitution
  and income effects.

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09.01
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09.02
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Buyer or Seller as Price Changes

• The following diagram shows that you remain as a
  seller in the x1 market.
• A further decrease in p1 may move you from a
  seller to a buyer in the x1 market.
• Derive the demand for x1 for a model with initial
  endowments.

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09.03
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09.04
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09.05
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09.06
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Slutsky Equation with Initial Endowments

• Pure substitution Effect
• Income Effect
• Endowment Effect

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09.07
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Example Leisure-Choice Model

• Max U(C, L)
• S.t. Cw(T-L)V

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09.08
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09.09
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09.10
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This concludes the Norton Media LibrarySlide Set
for Chapter 9 IntermediateMicroeconomics 6th
Edition byHal R. Varian
W. W. Norton CompanyIndependent and
Employee-Owned