Microeconomia I

Question 1

Define budget constraint:

Answer 1

It’s what you are allowed to buy based in your budget and prices.

Question 2

Describe the function of the budget constraint:

Answer 2

p(1)x(1) + p(2)x(2) <= m
Where:
“m” is the income and the budget set of the consumer.

Question 3

Why we assume p(2) = 1 in númeraire?

Answer 3

Because we compare a good with set prices to a different which can be whatever. What we are assuming is a general rule of the spend on other goods.
Also we have to mention that the p(2) is a composite good.

Question 4

Define budget set and line:

Answer 4

Set is the conjunct of possible number of goods we can buy. The line is the maximum it.
Remember that the slope is = - p(1)/p(2)

Question 5

What’s the interpretation of the slope?

Answer 5

It means what is the consumer/market is willing to “substitute” good 1 for consumption of good 2.

Question 6

What can be associated with the slope in terms of opportunity cost?

Answer 6

We can say the consumer give ups a certain quantity of the good two just to consume more of the first good.

Question 7

Draw:
- Increasing budget (m)
- Changing price of prices (P1 or P2)

Answer 7

Draw :p

Question 8

What’s the exact definition of Numeraire?

Answer 8

It’s measuring the price of a certain product compared to the others elements in a given equation.