Microeconomics · free preview

Optimization, Choosing the Best Affordable Option

Optimization as the three-part recipe of preferences, feasible set and choice, the budget line as the boundary of what is affordable, and its slope as a price of one good in the other.

1. Optimization has three parts

Optimization has three parts

2. The budget line

The budget line

3. The slope is a price

The slope is a price

4. Choosing from a menu when money is not the constraint

Choosing from a menu when money is not the constraint

5. Which bundles are affordable

A student has 120 dollars for treats. Restaurant meals cost 12 dollars each and paperback novels cost 8 dollars each, so affordability is 12m + 8n at most 120. Which of these bundles is NOT affordable?

6. Reading the slope

Meals cost 12 dollars and novels cost 8 dollars, and a student spends a 120 dollar treat budget on only these two goods. What does the slope of the budget line, expressed in novels per meal, represent?

7. Books left after the downloads

A reader has 90 dollars to spend this month. Online downloads cost 9 dollars each and paperbacks cost 6 dollars each. If the reader buys 4 downloads, the rest of the budget goes to paperbacks. How many paperbacks can be bought? Write the number.

8. Testing affordability

A gamer has 60 dollars, video games cost 15 dollars and streaming subscriptions cost 6 dollars. Which bundle is exactly on the budget line?

9. Reading the slope

With games at 15 dollars and streaming subscriptions at 6 dollars, what does the budget line's slope of 2.5 subscriptions per game mean?

10. Comics within the budget

You have 96 dollars, comics cost 8 dollars each and albums cost 12 dollars each. You buy exactly 2 albums. Compute the maximum number of comics you can still afford, and write the number.

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