7. Budget Constraints and Utility Maximization

[annie4170]

person spends all their money on whisky and dynamite =)

[noneelse1]

how is it that i spend 3 hours learning this in lectures and don't get it but understand it within 3 minutes of this video? thank you so much!

[makeiteasyable]

bravo..i love it.

[immortality64]

stick of dynamite and shots HAHA

[TYDiMaria]

I love you.

[vshel1988]

Thank you! Majorly helpful.

[wishythenwashy]

will you be doing these lectures in foreign languages?

[rrlu]

awesome video! Great help!

Thanks a lot!

[270103023]

Thank

[johannaariz]

Thank you so much. I am an A student but my teacher is extremely confusing. Im reading the book but I do need some explanation. You are very clear and made understand a lot.

[Agemrepus]

Wow thanks so much for putting this on Youtube! You have no idea how helpful this is to me!

[youngindian]

you are a genious i say, and i wish were my prof

[haseebahmed07518]

thanx a lot

[Theogrn]

My proffesor spent 2 weeks explaining this and i still didnt get it. I watched this once and feel like i can be tested over this, thanks for cutting out the bull shit that comes with classroom style teaching.

[galindogirl84]

Great job, but get a camera stand or a more steady hand.

[intromediateecon]

@galindogirl84 Thanks. It won't help this video, but my more recent videos (after vid 20) use a tripod (and my R tutorials use screen capture).

[freeze4real]

must a consumer choose two goods. if i were to maximise utility by picking only a good that i like is that possible.

[intromediateecon]

@freeze4real What you describe is called a "corner solution." It is possible in theory and in these contrived situations. In practice, it is rarely observed. To literally only choose one good and none of "other goods," a person would have to go without a lot of essentials. For example, suppose you maximize utility by having as much ice cream as possible. A corner solution here would mean that you would have *only* ice cream... no shoes, no water, no housing, no television, etc.

[freeze4real]

@intromediateecon

in this situation could a consumer maximize his utility buy buying only a product that's useful to him.

On a graph would a corner situation have a tangency condition?

thanks

[intromediateecon]

@freeze4real Yes, that's possible. At a corner solution, the indifference curve and a budget constraint are not necessarily tangent. To see why, consider a graph. Graphically, a corner solution on the Y-axis would involve an indifference curve that is flatter than the budget line.

[Xasew]

Next time I plan on getting drunk and blowing shit up, this will come in handy.

[debomiralha]

by the way..i like subtitles...it helps a lot...

[debomiralha]

this video saved my life...hihi

[Bergieberg28]

TNT and Whiskey kept me interested

[Jaiyo17]

A more important question is how do you derive the points (x,y) of the maximum utility??????????????

[intromediateecon]

@Jaiyo17 I agree that is an important question. That is why I address this question in Lecture 9a using calculus. But, the calculus doesn't make much sense without the conceptual foundation given in this video. Check it out if you are curious.

Without calculus, use the slopes equal condition (MRS = price ratio) and the budget constraint to provide yourself with two equation for the two unknowns: X and Y.

[Afsoon2009]

Thank you so much  but I wish there were no subtitles

[samarthc]

I have a question. Say the question says any two goods, (e.g. food and housing). Should we get the same result irrespective of whether we put food on the Y axis or housing? Is there a rule of thumb to follow which one goes onto which?

[intromediateecon]

@samarthc For the conclusions you draw from the problem, it shouldn't matter which good you put on the horizontal/vertical axis. My usual default is to put the good whose price changes on the horizontal axis. If you do this, the graphs are usually easier to draw (and understand).

[samarthc]

Thank you for your response. But, what if both prices are changing?

[intromediateecon]

@samarthc In this case, take your pick for how to draw it. It shouldn't matter.  My preference is to put the first price change on the horizontal axis, but that's a quirk in how I set things up.

[ny1fanta]

Perfect

[JoeDaPlumber]

Thank you SOOOO MUCH! I have a final tomorrow in Micro and I was crapping my pants until I saw your vid.

[zaincool20]

um is the math that you do for all these economic concepts included in the book that occurs on the side of ur video ??

[intromediateecon]

@zaincool20 Yes. My book has the math, graphs, and written discussions (at this level, the math is just algebra, no calculus). I produced the videos as a supplement to the book, so they work better together.

[lamesurfer101]

Dude! you are RAD! I wish my online prof was as solid as you!

[adamish1134]

Dynamite and whiskey; I love it! My public econ professor got his PhD from UC and spent ten years there doing papers, research, teaching etc. You have made things SO much more clean and simple. If you ever want to learn to snap somebody's arm off, just let me know. We can trade knowledge. Ha. Thanks!!

[sweetserenity12]

wow. thanks

[liganizer9]

great work, thank you!!!

[damselnat]

Dyanmite and whiskey sounds like a Tom Waits song ;-D

[mediblue9]

Dynamite and whiskey? Sounds like a great rock song.

[uklizanon]

When I can relate new info to what I do myself or already understand, I get it! You have a way of doing this for my head every time. (You might like whiskey and tnt, I prefer coffee and cake). Applause Applause.

[intromediateecon]

Thanks for the compliment. I'll have to do an example with coffee and cake in the near future.

[2scotland1]

Thankyou so much, I was totally lost before this :)

[urrasberry]

very well explained ... keep up the voluntary work...it was a very detailed and explanatory video

[mvho1]

Great vid! Can you go over monotonic functions and maybe include more calculus applications (The Cobb function etc..)

[intromediateecon]

Thanks! The videos where I include calculus are denoted with an A (for "Advanced") next to the lecture number.

In my utility maximization with calculus video (Lecture 9A), I use a Cobb-like utility function (U=XY). Now technically, it isn't the usual Cobb-Douglas form, but it is the square of one. Perhaps, I'll do a video on monotone transformations that makes this point.