There is a quiz tomorrow on the homework that is due Friday. The class will review finding the optimum amounts of two goods using indifference curves and budget constraints, which requires solving two equations simultaneously since there are two unknowns. They will also cover interpreting indifference curve shapes for Cobb-Douglas, independent, and perfect substitute and complement goods, and conditions that produce corner solutions versus interior solutions.

1. Outline for Monday, July 21
Remember
Quiz tomorrow
Homework due Friday
Review Friday – finding the optimum
Questions about the hw or quiz?
Cobb-Douglas functions
ICC and PCC interpretation

2. Finding the optimum (X*,Y*)
There are two unknowns, so we need two equations

3. Finding the optimum (X*,Y*)
There are two unknowns, so we need two equations
You should know how to solve…
Typical case Expenditure = Income Slopes match
Perfect substitutes Expenditure = Income Buy X OR Y
Perfect complements Expenditure = Income Buy X and Y together