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Chapter 18 / Trading from an Endowment

18.4 Offer Curves

Having solve the optimization problem in a trading context, let us now turn to a comparative statics analysis: specifically, what happens to the optimal bundle when prices change?

Recall from Part II the price offer curve illustrates the set of bundles that a consumer might choose at different prices. In other words, it’s drawn by solving the optimization problem for a range of prices, and connecting those dots together:

Two things to notice about this offer curve:

Because the offer curve is a parametric equation, deriving an expression for the offer curve is difficult and sometimes even intractable. It’s also not terribly important; at this level, it’s sufficient to understand what an offer curve represents.

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