4. Constrained Optimisation Flashcards
1
Q
What is the bliss point?
A
The point at which the consumers utility reaches a max
2
Q
What 2 possibilities do we need to consider in constrained optimisation?
A
-income is larger than the price of the widget times the number of widgets required to reach bliss point
-income is smaller than the price of the widget times the number of widgets required to reach bliss point
3
Q
What is lambda equal to in the Lagrangian?
A
Increase in utility achieved by an increase in one unit of income.
4
Q
What is lambda equal to in the unconstrained problem?
A
0
5
Q
If you take the partial derivative of the lagrangian wrt income what do you get?
A
Lambda
