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I. Introduction

Explore the Economic Theory of Choice focusing on Certainty, Feasible Opportunity Set, Criteria for Choice, Optimum Choice, and Equilibrium. Discover the possibilities within an Opportunity Set with examples like spending all income, saving, or borrowing wisely. Compare rational choices like maximizing savings to irrational decisions. Learn about optimizing choices in a scenario with a 5% income transfer and how it impacts decision-making.

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I. Introduction

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  1. I. Introduction

  2. Economic Theory of Choice - Certainty 1. Feasible Opportunity Set 2. Criteria for Choice 3. Optimum Choice 4. Equilibrium as Aggregate Assume 10,000 income in each of two periods Transfer at 5% Then Die

  3. 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

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