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Economic Theory of Choice - Certainty
1. Feasible Opportunity Set2. Criteria for Choice3. Optimum Choice4. Equilibrium as Aggregate
Assume 10,000 income in each oftwo periodsTransfer at 5%
Then Die
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Opportunity Set - What are the possibilities?
Extremes
My mother-in-law spend as much as you can now
Rational world can only borrow what can pay
back
A + (.05)A = 10,000
A = = 19,524
Scrooge - save as much as you can
10,000 + 10,000 (1.05) = 20,500
All possibilities on bounded straight line
05.1000,10
2 1
2 1
1 2
C = 10,000 + 1.05 (10,000 - C )
C = 20,500 - 1.05 C
for C 0 C 0