HOTELLINGSLOC.

AT#NM0DEL
characteristics
:X c- [o ,
2 ]
ideal characteristic : Ñ
product d distance value : Ñ -

d
w

☒ " "
travel cost
Demand for L
good

÷÷E¥÷÷÷: DdPÑ=É-
Pi Pr> I

prkl ,ÑZHPIPR
min
{ T pz,
-
BN otherwise
↳ mole with negative
consumer surplus
excluded
at

consumer ideal 0
with =

WTP At Ñ and above

has
Csis therefore Ñ p, -

consumer will always choose product w/ higher CS

c. buy)
(when Cs is negative , consumers would strictly meter not to

dt is when Cs is equal → varies by price

* indifferent consumerist

dt CS g- T
d P
good L
-

if Csis CSR buy

-

at :
, ,
=Ñ Ctd ) vice versa)
Csr PR (and
-

solve for dt at
set them
ltfpzrpz)
to :
equal
=

provided that dt has positive CS

and-KP.FI?EfF#,mendt isn't interior

↳ one firm takes it all

profits
The -45cL)d+N

cixltpp-pdxITLMAXBR-BRucppl-2-lltppE-c.cl
=
@c-
=
PEI

BRR (B) =
£11 + pit CR)=P¥
p E- 1++312 Catch] Ppf -4+1-312 Crtcz )
assume cz=Ck=c
pi =
pit = I -1C
since equal cost ,
dt =L
WTP :
j -

2- ( -
Itc) =
Ñ 3- - -
C Z o ,
CIÑ -3-2
 Hdt results in negative surplus → use Ñ -

p
# ✗
intercepts
*

÷
Tv -

PL

#•R ] location

PREFERENCESI.lt/llTY-
pansibreasmmptionsM"rationM"MM
> prsiiiireds ~ indifferent
*
www.tyisnd-inanot cardinal
I → weakly preferred

transitive :
if ✗ Ey and yet ✗ Et
,
monotonic If Xizyi for all i Ey better )
:

,
✗ cm one is
If it is not true that x> y or
y>✗
irrethexuie X=y
:

complete :
any two bundles can be compared

comtnoninditterencecurves

¥É¥¥iÉÉE→
)=XFXi UCX ) =
hex , ) + ✗2 UH where
✗z
Where A) of > 0 where htx, ) is concave ✗, § > 0

☒ En
×, µ

uku n ✗I ×
,
µ -
u

perfectcomplements-leontiefpreterenc.e{s#ucx,,xz7--(axi
cESpreterencesf
taxi"Y" } tl-( next min
"
xxioxz wheres > o

€:
✗ c- (
0,21 , TE
-

☒÷
"
 The
-
budget constraint
→ consumer was an income I

pn-aker
→ consumer is

→
price of good for C- i1 =
n
=p ;
• • o
, ,

consumption bundle ✗ satisfies the

budgetE.tn?=,PiXi--PiX1-,...,pnXnII
→a

anm¥qnwEepmaem_
preferences
chooses bundle that solves Max Ucx, ✗ so . .
.

xn )
,

s t -
£ ×
, pi II

nti%Yuma%Y%n%F→ pix , -1Pa ✗⇐ I

wife × , 20

±¥u,yu
✗2
✗2=0 ✗ 1=0

Pix ,
← I to
✗ I
⇐
Ttp, Xz ÉTP ,

Xl
Ttp ,

¥ÑYirF÷ning any a points in X lies entirely in X .

•

✓ /×
•

Quasiconcavity_
BeHerTyans
&

set of consumption

}
bundles preferred call this the upper contour set
to the indifference &
curve
want them to be convex
weakly better than
includes the line itself

Quasi concave :
For all ✗ of utility function U , rue upper contour set is
↳ u is
quasi concave it convex
☒ U / XX -1 ( I X ) y) 2min { next Uly ) } ( including Douglas )
-

CES Cobb
-

y
* are convex

↳ vine btw utxl =

Uly )
-

to show ,

is either find Xztx , 7 ,

higher
)%¥°%¥F
at a

or equivalent indifference curve

preferences are therefore
convex (don't need to check soc
and
.

check its
positive .

Cor )
0
marginalraleofsubstitutiorn
implicit definition :

for =Uly ) withbudley

it
Xz=f(X , , it )
UH , , flax , ,ñ ) ) =ñ

ditierenti.at?Fx,+GY-zY--x,--O2U/2Xi
→

MRS
,a=
¥: -111¥ -1.1¥
,

¥12 -

M""=±M
equimarginalprinipe
negative MRS of goods for good 2
P2
holds unless Ucx , ,xz) is
Firmament or "" " " "" " *main
:

substitutes
Vcp, I )=U(✗ftp.T-ixzlP-t) )

*÷÷???÷ ..⇐?
demand function

.µµ
UH ✗ a) =
16×14×28 Xicp , , P2 ,
I )
,
:
consumer problem
Max 16×7×28 sit .

pixitpzxz # and
when
maximizing utility :

UH , ,xz)
✗ is ✗ 220 maximizing utility
monotonic ordinal
constraint function ftx)=I
utility is &

& use Lagrangian ?

✗ is -12>-0 2. =
Mlk > ✗ 2) 1- ✗ (I ftx) -

using the Lagrangian

:
I
7) xixi-XII-pixi-B.kz )
pzxz)
Lexi ,xz
✗ (I
=

,
P, X,
-
-

⇐o , ,

Xi find FOCS
3¥ Xi Xp , Xp ,
-

-0 →
-

-
-

%¥
,
=D 22
,
=

0
3%2=2×1×2 Xp 2--0 2×1×2 Xp, ggg
-_
-

* #
some for x , And Xz in terms
3¥ a¥÷×a=¥pp÷
I
RY Paks paxz-ap.rs
-
-

,
of ✗ , I, Pi , P2
Pix , =¥ paxz=¥ ( plug into constraint )
&
consumers demand :

indirect utility function

xi-zp-T-xsi-F-p-zxicpi.pe
, I )= Xicp , )
I

n.mu . . . . . .
Ulxnjyz)=X1XÉ =
4I3-

i27PiPsf
 Hi×¥Ñytou*,setVp,I--u4
When
maximizing utility :

UCX , , Xz)
maximizing utility
NJYpE,¥¥h¥×z ,
'
constraint function find -

use lagrangian ?
2. =
UCH , ✗ 2) 1- ✗ (I ftx)
-

*
✗ (I Pix, pzxz)
-
-

find FOCS

0¥ I
=0
,
21--0
oxa ( plug into constraint )
* #
some for x , and Xz in terms

of ✗ , I, Pi , P2
ENSURE N0N-NElVE CONSUMPTION

Salesvs.lnconeeTAk_
Lumpsum_
sales Tax f 'The
ma#
it PZXEIT sit Pill -1T)X , tpzxz
yyqfiyucxs.t.MX
.

✗ €1122
Ez
+1¥ d
← ta@

I
-

\
ji
←

ucxi:X:* ) < ucxisxit )

pane bundles no longer price is changing
affordable for good 1
→ Inas not

Inward shift been affected

pivot

consumers prefer lump sum tax

the indirect indirect utility
utility >
of lump sum of sales tax
substitution eteect .

ÑÉ qcp , -

, Pa , U )
calculate change in q

wicomeeteect
proportionate to be

qcpkpaiulle-p.pe?ut- 1)
*

cobbtoonglas-C.ES
monotonic ?

Income elasticity
§
o×i¥÷ppaiI
=
Transtersvsswbsidiess

cash subsidy in-kind transfer of 5 , units

of S =p I X2 ^

|¥÷*
, ,
Xzn
firsts units

¥÷¥*
are free
""

. .

per unit subsidy

consumers prefer
¥"
per unit
subsidy
a

→
costs more for
the gov't f

changingpn.us#ome
lncomeelaoticity-E.i-%aange.j.ua#i.-. demome
meted

swbstyutesrscompymehtsgoodiisagoodi.ba
gubfitnte.tn
=

°¥¥ x¥p,IT
complement
good kit for good kit
%p÷ > 0
d±< o
dpµ
Normal
Inferior
good --I9Remand9
good Ilatemandd
__

perfect :
mrsikis perfect complement :

substitute constant
Lshaped
 Expenditure Function & compensated Demands
ÉÉ
MEET 8 Pixie S.t. UCXIZU
compensatingvariation
how much more would
you
compens.ae#-diou :
spend to produce
under
same
utility
new
pricing
minimizing q given fixed
exp
utility el pit, pz ,ñ ) elp , Pa , ñ )
.

uncovupensaleddemandfunctiorr
utility maximizing quantities xlp , I)
with fixed
price and income

eg perfect substitutes
:

ULX , ,
✗27--4+9×2

Pp÷ § >
,
then ✗ F- 0 and

X£=Ug
F- 2- and
Pp÷L¥ ,
then ✗
✗ E- 0

subtweet .

use original utility

qcpio , Pa , U) qcpi Pain ) -

find comp demand

.

w/
calculate change in q new prices
calculate change in q

wiomgopfft-o-natetooeqcpkpa.nl/Y-pp:# -

1) → new price screen

maturity w/ givens & new

price "
diff
"
calculate from ghost

con unersuyptus cs-fdemandpincv-fxicp.nl

Pi
dp ,
camp demand)
.
 study
Better than sets
✓ quasi concave

worry stuff v4 income / sub .

smpÑb**
*
* consumer
*
* * lump sum

eqnimargino②
.

& sales tax

penname µ
income &
subsidy &
U
-
X , +Xz →
sub affect
.

✗~ =
U X,
-

→ compensating
variation

-1
0¥ =

:
 37×1
'
70-3 X 7×2 ✗

X2
7⑤
'
✗3 > X >

q ⑥⑧90b
✗ 4~x3 >X >
'
x2
'

xuzx *
727 a.) € ,%xz± )3
✗ 12×21
for every ox

b) 34442-12
↳ X7Xz
c) 4109×1+210942-12
-112
I "

e.
109211
-4,109×2

.FI#-pxi?z-t37XiX2T- .6logX1- 4l0gXzegx,-

1

*
=
.
-61¥ -1.4109×2
* =
.
446009×2
e e

eFx2=xÑ
747
g-
?⃝
2021HWY_

QI
U CX, 2)
, ✗
= CI -

d) log CX, ) + dlogxz

C.
Ulex -111 A) y) 2min { next )}
,*ucy
-

Utxiixal
=

toga , taxi )
e e

u-oxi w-xi-txF_uCxi7-xi-tx@txDYCxzcxDY-v.x
Xztx , ] =
y KX ,AZ-
'
-

,
"

* -

I
¥14 =vk(E) ✗ it
%¥=vY(
constant
d¥=
ax ,
vk.at#)fL-)xF*
)
since ✗ ( 0,1
C-

c
c- c-
¥> 2
pos
=

neg
'

neg
2.) maxltcxisxz ) S.t. P, X
, tpzxz __
I
LAGRANGIAN

2--4 d) loqx, -1×109×2+2 / I Pik pzxz)

-
-
-

¥x,=¥ -

XP , =0

*
¥ ,

%¥=¥z -

rxpz -0

X2=¥pz
✗
Epa
-

xi-LEp.BR#pz-txTp-iXP-CI-)Xzp(J-)XizPtXzP-
tD^zpz=I
I

Xz=✗p¥-
XFp¥¥¥#
✗
1--11-1-7
c.) vtx , ,xz7 €1 -

d) X
, -1×42
When otto ,

I
I

won a -40,1
Let

p,
-5
-

pz=2 ✗ =
# 1=100
want $10
i. taxes

UNI V27>
=

34-109×1 1- 1-4109×2
s t
5×1+2×2=-3/(1-2)
-
.

10011 -

T)
in

✗ =
.
I

sit .

5^1,1-2×2=90
f- G-logxittlogxz -14/90-5×1 -2×2)
3¥ ¥ -54--0
,
__

II. Ex -22--0 =

1--20%1=8%2
24×2--20×1
2×2--4%41=13×1
2b€ 5×1+35×1=90
15=201×1--2701

XF13.is#2Xz--
937
a.) U=x,Xz3
s.t.pixitpzxz-tc.pl/--$aI--xixi-tXfI-pixi-pzXz
)
K=¥=¥a=5
3¥,=xi Pix -0
+2=5%-317%-5-6
-

.jo#z=Xi3Xi)-XPa--0ez--C5s63X=BXpLT-dte*--e ate ,
,
10.63
xz-ps.BY?Y-)--o
u=
,
=/ 0.216
5=2160-4
XE-ptg-z.sn/ix5 xfpiiu )
2×1-15×2 =
y*
'

§2p_§=X Xiii -2160

-

pzxi-T-xi-ah.bz?L--2Xit5XztX(2160-XiXz3)z1pzXz--T-
PIPPI ) f-
-

4×-1--2 xxi=o
xz=3¥µ
-

"
=

"5pY-=¥r¥p§_¥i5→xxixi=o
a-÷.
2- axis

=u÷
-

5- 317%-11×1*1=0
b.) ✗
1--44%3=10 5=6%1-2
42=34,4*+1220-0--6 5×2=6×1

e
, =( 0,6 )
✗
F5¥ 5%-1×23=21600
42--4/2592=7.14
""

%÷

qtq-rqrc-q-cY-q-9-t2-Fq-ra-areqrqz.it
a) W= d-

-4-51++7 aragY
⇐I¥¥
<
a-

b.)
P¥=
mRSqc=2Jq
MRS 1,2
:=¥i
%
= Mrsa -1¥ 2¥59
Nq=Ne pqqtpcc
__ 24

q=c q -12C
.

24
=

q -129--24

: u*=
39--24

+608 -12-3087
=
8
"

.q
ecq , -12C S.t. Uca , c) ZU

compensated
a- mm

qtac-es.t.u-tzvq-3-ETL-q-2c-xft-fzrq-3-ve.TT
-

Ctqtqtrqr -14% )
¥q=1 -4*-4%9*-0
2--412*+25%1
-oÉ-x
0,4--2
go.IN#4q---o2---
-

Fate -11$
¥2K
* EEfaF÷rc
tdrqturc
18K =/ 85g
rc=ra
c=q
c.)
equimargina.it

IF =P¥
Nc
=2PqpaI
w=⇐Nq -131211rad )
-

gu
=

pcr9.jp?f9r9- djswbefect
fix utility
:

,
new prices
zporu __pcTqt4PqÑ q=q( 2) 2,8 ) -911,218)

go.F-pi-raaiy.se#;Isoi- apI:Tf-ape-ecc--
*q÷a
c-
%÷i¥÷•ñ

ck36poiuc typqpecpc.paiut-Pqlf.CI?Y-gp)+p.cl?ff+-9ffgp)
\
597 ^

-5

Boo •I
1 2
O L

a.)
600m$
3- Pedi

.g g ,

dt :

( tdt)
☒ PL dt=&- Pr
-
-

pr-ltdl tpr@Ñ)(1tPE→)N
z-PI-dlma-t.li
-

prat = -

=
matter
" PLR
"

p<+PqgPiN
=

reflection

ppi-HPII-PR-2.PL
£-11 -1Pa -2Pa)=o
Foc

pL=HP¥ iffy
PE

2PT-ypi-2-HPh.at =L
3PL=3
v. 500
PEL
pr=I $500
b.) orsbetne

ltpkz-kmax-v-PL-27LHPEB-HNE.t
dt=

-1Pa 2h -12)N=0
-

21-PR-2pj-OPR-2.PL-2

ret-e-bysymmehypz-2.PK -2

2) -2
Ppe 212Pa
-

PR=4Pe -6
-2 $1000
G- 3Pa Pz
PEZ
€00 ) ( p Yy ) 11000 ) Lp
> 8-
5)
-
-

500 p -

125 7100 Opp -

81000 -
500
>
boop
5757 81000
3

£275 > .

PL

Peppa
Ñ =
.
86 ?
as optimal consumption :

Max
US.t.ph/itpzXz--I
Lagrangian

£ =

✗ 1+372+2 (I
-

pill pzyz )
-

¥x ,
=
1- Xp , 0

✗
&
=

%xa= 3- Xp •
=o

3-
p÷lPsl=0
z= Ppf
3.Pi =P a

perfect substitute :

{
Ifp , Pa > 3 P ,
X, 1pm Pait)
o p2L3P ,

{
I
/Pa Pa<3p ,
✗ 21pm Pa ,I)
0 Pa pi

b.)
Pa¥}# ¥ 1¥
= =
soo Wawa

g food
truck

c.) 2<3
food truck
¥-2 10-2=500
=

Wawa

d) Xslpi , Pa , b)
{ Ifm
3¥ Ipp g¥j=0
=

when Pat 3p , ,
,

when pal 3h
3¥ -0
-

%p÷
 89J
ucc ,r)=c -140 art
-

or -46 0£15
16
e- ¢6 r) 80-115
-

2¥
c- to -2ha -
✗ ( c- ¢6
-

r )
)80 -15
D= C- 1600-116 Or -4A XC -12280×-80415/1 -

sa =
2- X=o
☒
✗ =L

off = 160-88-80--0
←
80--8 r

↳ work 6 hours

f- ¢67720 -115
-1157
f- c- 1600+16 Or -4M -1C -13201 -201hr

8¥ -1-7=0 ✗ =L
-

IF 160140--8
8r -207=017.5
=
-

r
8140T
1¥ 17-5
f-
86-0 v.
58 notate
r
Ohours
907 utx ,,Xz)=tx , -107×2
Xi -1×2=1
a.) Xl -1×2=-1--15
before : after

G- ⑦ 1-107×2+11=1 ×, xz ]
-
-

3¥ ,
-_
Xa -1--0
112--11

3%2=41-10-11--0 ✗ 1--7/1-10
✗ 1--1121=-110

¥1 ? → are same
EXCEPT
Xa=I+I0-

b5É☒-xz=Its X|txz=Ittx ,

÷±÷÷÷÷¥¥i* ⇐
x ,lt

¥s -1¥
Ka -

t ) -1×2=1

XHXz=Ittx ,

IX , =
Ixi -

SITSX , -52
917 927 E. 2
income is $100 → collect $20
period -1

3lnxi-lnxzs.to
Max U =

X, -_
cake ✗ 5- save
.541-12×2--80
I saved
c.
= -

pcz=It saved /Itr) 2=31 nxitlnxz -17180-5×(-2×2)

saved -1--9
0¥
,,
-_

¥, -5×2=0
pcz=It( I -

either) ✗ =¥X ,
1¥ +1-1--97
0¥; ¥ ,
-211--0

a.) c.
+1¥ __I+Ér a±I
1×-2=2131^4
UCqczt-logcitkog.cz
¥=¥x ,

b.) maxlogci-logczs.t.at?Ef--- I -1¥ ✗i

;¥xT
✗ logqtlogcz -1×11=+2-+7 ¥2T )
I¥#xz+2k
G-
= -

- so

2¥ =É, -2--0
25×2+12×2=480
☒37xz=48J
, 1µg §

x=É 377480T

¥↳=dz -

¥F=o 1¥ 3×2+4×2=160
no

Ea ¥n=U 7×2=160
-

X2

c1lHp#=C2
at
"¥c*#¥I+¥r
e. =¥+µ¥a
ca=I"¥f
as rhe.tv
offr@rms.WTP R

at

3 cases

dt is positive
dt is 0 →
sprit evenly ?

d-1 negative → not entire market

is served -
 t.EE .
2 conditions for L to capture all
a

cs is =Ñ l PL cspl1) =T PR
-
-
-

2- piso
①T
-

DÑ
-
l -

pint PR -

11

PR> Put 1
Ppi PP 1

calculating subsidy
→
compensating var
-

WWA
→ per
subsidy .

subsidy
① look at lump sum Umax brindle ( X )
② Allen mine what per
unit
subsidy makes (X ) affordable
curve , find Umax bundle ox 1)
③ based on new budget
xics s
'
✗ >x , >
t omewovk9-QJUtxi xzl-xitxi.at
Notanastconcave

utxiixzl-xi.tn/i
✗
2

☒ ✗ I

b.)
£= xp-1×22 + HI Pix , Pz Xz )
-
-

¥-52K -

XP, -0
-

3¥ ,
=
2×2 Xp2--0
-

a-
2¥ ,

2Xa=2¥Pz
✗
g- Pgox ,
•

,
✗ in
-1^41-7 )pz=I
OD UCGMI =3e -1cm
d.) pc=Pm=1 I -42

new nmax 3c+cm

a.) U=6 U=9 Csttmmtc
g. t 12
-_

6=32 -1cm tm c)
L= zetcm -1×112
m
9 -3C -1cm
- -
-

m=6-}c_ 9--20
z-im-X-OX-3-mf n-c-t-tx-oc-l -tmcztm.to
¥
me =

^g
,

)
c=C+Eff3+m
,
Ctttmtbtmtlttm)CmD=l2
-12m )
quasi concave [ Htm )l3

me
6-2-0--6=-3 nr=⇐¥m 3) £ -

Y c=d+tm)l3+m)
ya -6g =

④ c=CHtmK¥m-31243)
%¥a=¥z → always
pos , convex my
worm e- CHEM)(¥¥mJ- 1-3-2)
Cc can't
be
neg) g- 12-21-311+2=7
c- 6+3-2127
c) max Ulam )=3c -1cm =
6+3=9 f- 6 1- %( Htm )
8. t
(-2-3)-2
pectpmm
-_
I m= 87¥
6+Z( Htm)77c5
C-
3ctcm-XCI-pcc-pmm.az
7¥ =3-1m XPc=0 c increases
-
.

F-
3T¥ § account for revenue
0 non-negative ME t-y.la#m- 3)
¥m=e -

xpm=
$

Xpm=PpY- Gtm) 113-14-57=7-5 Itm

=

G-
¥F-m
-

constraint
pcc+pmM=I Max 1--0
!
61Htyf-m-6.tn-3=0
¥97134m)tpmm=I
3pm tpmmtpmm
-_
I 6+6,11+2-77=3-2
4=Cttm7
m=I-3P_m → before 1%1=92--4-5 g-
Htm
?? ?
2PM tm=s ?

e-
time / 3+-1-2%1=7
=P¥YaPmE¥Im)=3Pam+÷
e.) m -712,0-9 tm*= 2

| 1--12%(9,3/2)=3197+908 =
27+27-2
)

27+13.5
=

Budget line

Cfttmlc + (lttmm 12 =4O

②ttm) ( Ctm) -12
① ttm )(q -13-27--12
Attn) 1%-7--12
tm= 2¥ -
s

tm =3, =

"
at tm -

¥
maxu Etc -1m ) =
12

L =
3C -1cm -1×112-8=>4 -1m))

8¥ = 3. + m
-

8¥ -
o

¥1
2¥ e-

3tm=s
¥(3tm+m)= 12
Meter tax
¥# 813 -12m)=gy
both
2*41+16 m= 84
16m
=
60
m=6%-=%=¥
-3.75J
c=6.
Ulu -751-3.75)
=45
 %eaan.Y.eu?ana-qdl?nanindedmec--1ttm)m=TCtm--
f.)

I -

Emm
=I-@
m→3k-?¥⇐ 12
1- 312
£
10^5

s
④tmctllttmm -1
m→ 150% 12-431-+331--3
H④
Q1 )

at min pbbtpiv St. Cfrb -14-08)2=u

compensated demand

£= pbbtpiv-xlu-lyt.rs -13nF )~ )
=PbbtPvV+X(U-l%btZgvFJb+%v )
¥b=Pb
⇐

¥6
-

Y¥3¥(£Ñ¥=o
0¥ por
-
-
-

x% -3815T¥ ,

-3%01--0
)
16ps -
X

1686--4 -132T¥
c¥¥ %J ;¥=pr¥I¥¥¥)→#¥✓#Y-r )=o
Pia¥¥% ) -35%-4%-3%-7=0
Pall -13T¥) 9Pb
3¥yPb=0
-
-

--%¥÷=%
'

mrsbr

¥b=F6+%ÑFb

9-g3-y-3.l-FTFTYi-ti#frb=-Iu:F-.FiI-?sEtsCHbf
-Sb-3y-Jb-.p9YbPb-)--ur
It
=

3TbPb=ÑVPzv

abp-wpj r-ab.PE#=YY-%Fbv--abpnY-g--9¥¥YpP!-y
v-abpYE-ri-C.p.EE .
"☒,☒
¥4s

iatpb-2PI.co
'
Max u Herb -1ft )

3¥b=p%-
I ;¥
Vb=rFv
b=N

2b -166--48
86=48
b-
-12*-336
v=6

at -16,63 ,=w=T6 -13-0612=6

fix utility
b*( I -5ps ,pv,U ) -

b*( Pb ,Pz,U)
6*(3,963-672,66)