Lecture 5: Individual and Market Demand
|
|
- Bernice Jackson
- 6 years ago
- Views:
Transcription
1 Lecture 5: Individual and Market Demand September 27, 2016
2 Overview Course Administration Change in Income and Changes in Consumption Figuring Out Your Demand Curve Income and Substitution Effects Individual Demand to Market Demand
3 Course Administration 1. Return Problem Set 3 2. Problem Set 5 is posted 3. me to post notes if you want to speed me up 4. Reminder: midterm October 11 One more class, then the midterm Next class will have a problem set Sample midterm posted last year s was one week later in the semester 5. Any questions?
4 Ripped from the Headlines As a reminder, next week Afternoon Finder Presenter Erin Diamond Mirel Herrera Stephen Payne Thomas Coyne Evening Finder Presenter Jonathan Moore Jack Kammerer Jack Kammerer Jocelyn Ulrich Kathy Bradley Tinsae Gebriel
5 Income and Changes in Consumption
6 Concepts from Last Class Utility Indifference curves Budget constraint Utility is maximized when
7 Concepts from Last Class Utility Indifference curves Budget constraint Utility is maximized when MRS X,Y = P X P Y MU X MU Y = P X P Y
8 How do Changes in Income Affect Consumption? Income effect change in consumption due to a change in income When income increases, what happens to location of budget constraint?
9 How do Changes in Income Affect Consumption? Income effect change in consumption due to a change in income When income increases, what happens to location of budget constraint? shifts outward slope of budget constraint?
10 How do Changes in Income Affect Consumption? Income effect change in consumption due to a change in income When income increases, what happens to location of budget constraint? shifts outward slope of budget constraint? unchanged, since prices haven t changed shape of indifference curves?
11 How do Changes in Income Affect Consumption? Income effect change in consumption due to a change in income When income increases, what happens to location of budget constraint? shifts outward slope of budget constraint? unchanged, since prices haven t changed shape of indifference curves? nothing!
12 How do Changes in Income Affect Consumption? Income effect change in consumption due to a change in income When income increases, what happens to location of budget constraint? shifts outward slope of budget constraint? unchanged, since prices haven t changed shape of indifference curves? nothing! And how does utility change?
13 How do Changes in Income Affect Consumption? Income effect change in consumption due to a change in income When income increases, what happens to location of budget constraint? shifts outward slope of budget constraint? unchanged, since prices haven t changed shape of indifference curves? nothing! And how does utility change? at a minimum, does not decrease
14 Reminder: Some definitions Normal good good for which consumption increases with income Inferior good good for which consumption decreases with income Whether a good is normal or inferior depends on your income. Example?
15 Normal and Inferior Goods in Pictures Find the Inferior Good!
16 Income Elasticity and Types of Goods E D I = % Q % I Sign of E D I for inferior goods?
17 Income Elasticity and Types of Goods E D I = % Q % I Sign of EI D Sign of EI D for inferior goods? EI D < 0 for normal goods?
18 Income Elasticity and Types of Goods E D I = % Q % I Sign of EI D Sign of EI D for inferior goods? EI D < 0 for normal goods? EI D > 0
19 Income Elasticity and Types of Goods E D I = % Q % I Sign of EI D for inferior goods? EI D < 0 Sign of EI D for normal goods? EI D > 0 necessity goods: 0 < EI D < 1 luxury goods: EI D > 1 EI D = 0: Income inelastic
20 Income Expansion Path We want to describe the basket of goods you consume at each possible income level Income expansion path optimal bundles at each income level Normal goods positive slope Inferior goods negative slope Note: Skipping Engel curves due to time constraints!
21 Your Demand Curve From First Principles
22 Using Income and Utility to Find Your Demand Curve Recall that a demand curve shows the quantity demanded at a given price In other words, what happens to consumption of X as price changes We now have the tools to figure this out for you We draw budget constraints and indifferences curves in Y vs X, but we need a P vs X graph for demand
23 Using Income and Utility to Find Your Demand Curve Q Y P Q X Q X
24 Using Income and Utility to Find Your Demand Curve Q Y P Q X X 1 Q X
25 Using Income and Utility to Find Your Demand Curve Q Y P Q X X 1 Q X
26 Using Income and Utility to Find Your Demand Curve Q Y P Q X X 1 Q X
27 Using Income and Utility to Find Your Demand Curve Q Y P Q X X 1 X 2 Q X
28 Using Income and Utility to Find Your Demand Curve Q Y P Q X X 1 X 2 Q X
29 Using Income and Utility to Find Your Demand Curve Q Y P Q X X 1 X 2 Q X
30 Using Income and Utility to Find Your Demand Curve Q Y P Q X X 1 X 2 Q X
31 Using Income and Utility to Find Your Demand Curve Q Y P Q X X 1 X 2 X 3 Q X
32 Using Income and Utility to Find Your Demand Curve Q Y P Q X X 1 X 2 X 3 Q X
33 What Shifts Your Demand Curve?
34 What Shifts Your Demand Curve? Changes in price move us along the demand curve
35 What Shifts Your Demand Curve? Changes in price move us along the demand curve Changes in tastes or income or prices of other goods may shift the demand curve How would we change the preferences in the previous example?
36 Income and Substitution Effects
37 Income and Substitution Effects Any change in quantity demanded comes from at least one of these two sources Substitution effect change in consumer s consumption choices due to a change in the relative prices of goods Income effect change in consumer s consumption choices due to a change in the consumer s income Note that policymakers can influence both of these margins.
38 Price Changes and the Total Effect Total Effect = Substitution Effect + Income Effect Total Effect = due to price + due to income
39 Isolating the Substitution Effect Change in consumption from A (old) to B (new) due to fall in P meals Substitution effect is the change in Q due to a change in the relative price of X and Y holding utility constant What would you consume if you were at the old happiness (utility), but prices changed? Call this A A to A is the substitution effect. With two normal goods, substitute toward the cheaper good
40 Isolating the Income Effect Income effect is change in consumption due to change in purchasing power With normal goods, you want more of both goods
41 Isolating the Income Effect Income effect is change in consumption due to change in purchasing power With normal goods, you want more of both goods
42 Why Do We Care About These Things That Aren t Even Real? Think about a trade-off between consumption and leisure You like both consumption and leisure More work more consumption More work less leisure
43 Why Do We Care About These Things That Aren t Even Real? Think about a trade-off between consumption and leisure You like both consumption and leisure More work more consumption More work less leisure Any policy that increases workers wages has an income and substitution effect What are these policies? Minimum wages Social Security Social Security Disability Insurance and...?
44 SSDI Enrollment Over Time
45 SSDI Enrollment Over Time
46 SSDI Example SSDI gives money to disabled working-age people in the US. It yields a substitution effect:
47 SSDI Example SSDI gives money to disabled working-age people in the US. It yields a substitution effect: benefits make leisure relatively cheaper than work work less income effect:
48 SSDI Example SSDI gives money to disabled working-age people in the US. It yields a substitution effect: benefits make leisure relatively cheaper than work work less income effect: benefits make you absolutely wealthier work less
49 SSDI Example SSDI gives money to disabled working-age people in the US. It yields a substitution effect: benefits make leisure relatively cheaper than work work less income effect: benefits make you absolutely wealthier work less The conceptual distinction between income and substitution effects is central to welfare analysis. If SSDI reduces labor supply through the substitution effect, this implies a deadweight loss. In effect, SSDI pays beneficiaries not to work. By contrast, reductions in labor supply that are due to the income effect do not imply a deadweight loss since there is no distortion of incentives (though, of course, the funding of transfer payments may incur deadweight losses). From Autor and Duggan, Distinguishing Income from Substitution... May 2007
50 How to Find Income and Substitution Effects Call initial optimal choice A. Then the price of one good changes. 1. Draw new budget constraint with price change. Find indifference curve tangent to this budget constraint. This is point B. A B is total change. 2. Isolate price change: Draw extra budget constraint that is parallel to the new budget constraint, but tangent to the original indifference curve. Point of tangency is A. A A is substitution effect. 3. Isolate income change: A to B is income effect prices are are the same and we examine only income change.
51 Walking Through Both Effects Q Y I/P Y I/P X,old Q X
52 Walking Through Both Effects Q Y I/P Y I/P X,old I/P X,new Q X
53 Walking Through Both Effects Q Y I/P Y I/P X,old I/P X,new Q X
54 Walking Through Both Effects Q Y I/P Y total effect total effect I/P X,old I/P X,new Q X
55 Walking Through Both Effects Q Y I/P Y I/P X,old I/P X,new Q X
56 Walking Through Both Effects Q Y I/P Y I/P X,old I/P X,new Q X
57 Walking Through Both Effects Q Y I/P Y I/P X,old I/P X,new Q X
58 Walking Through Both Effects Q Y I/P Y subst. effect subst. effect I/P X,old I/P X,new Q X
59 Walking Through Both Effects Q Y I/P Y I/P X,old I/P X,new Q X
60 Walking Through Both Effects Q Y I/P Y inc. effect inc. effect I/P X,old I/P X,new Q X
61 Walking Through Both Effects Q Y I/P Y total income substitution I/P X,old I/P X,new Q X
62 Walking Through Both Effects Q Y I/P Y total income substitution I/P X,old I/P X,new Q X
63 Walking Through Both Effects Q Y I/P Y total income substitution I/P X,old I/P X,new Q X
64 Substitutes, Complements and Indifference Curves Recall indifference curves for perfect complements Recall indifference curves for perfect substitutes Real-life indifference curves are probably usually between these two extreme cases The less curved the indifference curves are, the more substitutable the goods Do we expect a small or large change in the consumption of Y due to a price change in X if indifference curves are pretty straight?
65 What Determines Size of Income and Substitution Effects? Substitution Effect Depends on the curvature of the indifference curves Very curved indifference curves (closer to perfect complements) leads to smaller changes in response to price Very flat indifference curves (closer to perfect substitutes) leads to larger changes in response to price
66 What Determines Size of Income and Substitution Effects? Substitution Effect Depends on the curvature of the indifference curves Very curved indifference curves (closer to perfect complements) leads to smaller changes in response to price Very flat indifference curves (closer to perfect substitutes) leads to larger changes in response to price Income Effect Related to the quantity of each good consumer purchases before price change The more you spent on the good before the price change, the greater the effect of the price change on your budget Effect is largest for goods that make up the largest share of the budget
67 Monika eats chips and crackers. Income is $20 P chips = 1, P crackers = 2 Try It Out Yourself Her optimal choice at these prices is 16 bags of chips and 2 bags of crackers When P crackers,new = 1, Monika eats 8 bags of chips and 12 bags of crackers Questions 1. Draw the budget constraint and utility curves consistent with this description; put crackers on the x-axis 2. Find the income and substitution effects for crackers. Which is larger? 3. Are crackers a normal or inferior good? Chips?
68 er f s is income and substitution effects for crackers. Which is BC 1 Admin Income Your Demand Inc. and Sub. Ef. Mkt Demand larger? Are crackers a normal or inferior good? Chips? Total eff Total effect Chips A U 1 Solution: B Monika s Eating Habits 1. The price of chips has not changed, and Monica can still buy 20 bags of chip however, she can now afford twice as many crackers (20 bags). 2. Chips U 2 BC 1 BC Crackers Total effect a can still buy 20 bags of chips if she so chooses; (20 bags). The substitution effect is measured by holding utility at the initial level; it is th A to bundle A. The income effect is the movement from bundle A to bundle B. T ratio of the prices constant. For crackers, the income effect is larger than the subs 3. Crackers are a normal good because Monica purchases more when her purcha U 1 A Substitution effect A' B U 2 BC 1 BC ' BC Crackers Income effect
69 Individual Demand and Market Demand
70 Finally, Getting to Market Demand! Market demand is the sum of all individual demands Add individual demands horizontally For any price, add the quantities
71 Adding Horizontally
72 Using Algebra To Do This Suppose we have two demand curves Q Joe = P Q Jack = P
73 In Pictures Joe s Demand P 100 Joe Q
74 In Pictures Jack s Demand P 100 Joe 52 5 Jack 13 Q
75 Market Demand in Pictures P 100 Joe curve kinks at P=52, Q= blue = total market demand Jack Q
76 The Algebra of Demand Curve Addition At P > $52, Jack doesn t want any more At P > $100, Joe doesn t want any more No one wants to pay more than $100 The maximum total quantity demanded is Q = 18
77 The Algebra of Demand Curve Addition At P > $52, Jack doesn t want any more At P > $100, Joe doesn t want any more No one wants to pay more than $100 The maximum total quantity demanded is Q = 18 We write this as { Q Joe + Q Jack = P if 0 < P 52 Q M = Q Joe = P if 52 < P 100
78 In Case We Have Time: Adding Demand Curves In a very small town, only Jim and Alice want gasoline. Jim s demand is Q J = 15 3P and Alice s is Q A = 30 5P. 1. Find the equation for the market demand for gas 2. Draw the demand curve in a chart
79 Recap of Today Changes in Income and Utility Maximization Changes in Prices and Utility Maximization Income and Substitution Effects Market Demand
80 Next Class Turn in Problem Set 5 Producers! GLS, Chapter 6
Lecture 5: Individual and Market Demand
Lecture 5: Individual and Market Demand September 26, 2017 Overview Course Administration Change in Income and Changes in Consumption Figuring Out Your Demand Curve Income and Substitution Effects Individual
More informationLecture 5: Individual and Market Demand
Lecture 5: Individual and Market Demand September 29, 2015 Overview Course Administration Change in Income and Changes in Consumption Figuring Out Your Demand Curve Income and Substitution Effects Individual
More informationLecture 4: Consumer Choice
Lecture 4: Consumer Choice September 18, 2018 Overview Course Administration Ripped from the Headlines Consumer Preferences and Utility Indifference Curves Income and the Budget Constraint Making a Choice
More informationLecture 3: Consumer Choice
Lecture 3: Consumer Choice September 15, 2015 Overview Course Administration Ripped from the Headlines Quantity Regulations Consumer Preferences and Utility Indifference Curves Income and the Budget Constraint
More informationTopic 4b Competitive consumer
Competitive consumer About your economic situation, do you see the light at the end of the tunnel? I think the light at the end of the tunnel has been turned off due to my budget constraints. 1 of 25 The
More information(Note: Please label your diagram clearly.) Answer: Denote by Q p and Q m the quantity of pizzas and movies respectively.
1. Suppose the consumer has a utility function U(Q x, Q y ) = Q x Q y, where Q x and Q y are the quantity of good x and quantity of good y respectively. Assume his income is I and the prices of the two
More informationEconomics II - Exercise Session # 3, October 8, Suggested Solution
Economics II - Exercise Session # 3, October 8, 2008 - Suggested Solution Problem 1: Assume a person has a utility function U = XY, and money income of $10,000, facing an initial price of X of $10 and
More informationLecture 8: Producer Behavior
Lecture 8: Producer Behavior October 23, 2018 Overview Course Administration Basics of Production Production in the Short Run Production in the Long Run The Firm s Problem: Cost Minimization Returns to
More informationIntroduction to economics for PhD Students of The Institute of Physical Chemistry, PAS Lecture 3 Consumer s choice
Introduction to economics for PhD Students of The Institute of Physical Chemistry, PAS Lecture 3 Consumer s choice Dr hab. Gabriela Grotkowska, University of Warsaw Based on: Mankiw G., Taylor R, Economics,
More informationEcon 1101 Summer 2013 Lecture 7. Section 005 6/26/2013
Econ 1101 Summer 2013 Lecture 7 Section 005 6/26/2013 Announcements Homework 6 is due tonight at 11:45pm, CDT Midterm tomorrow! Will start at 5:40pm, there is a recitation beforehand. Make sure to work
More informationMicroeconomics. The Theory of Consumer Choice. N. Gregory Mankiw. Premium PowerPoint Slides by Ron Cronovich update C H A P T E R
C H A P T E R 21 The Theory of Consumer Choice Microeconomics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2010 South-Western, a part of Cengage Learning, all rights
More informationTopic 2 Part II: Extending the Theory of Consumer Behaviour
Topic 2 part 2 page 1 Topic 2 Part II: Extending the Theory of Consumer Behaviour 1) The Shape of the Consumer s Demand Function I Effect Substitution Effect Slope of the D Function 2) Consumer Surplus
More informationEastern Mediterranean University Faculty of Business and Economics Department of Economics Spring Semester
Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2015 16 Spring Semester ECON101 Introduction to Economics I Second Midterm Exam Duration: 90 minutes Type A 23
More informationChapter 3. Consumer Behavior
Chapter 3 Consumer Behavior Question: Mary goes to the movies eight times a month and seldom goes to a bar. Tom goes to the movies once a month and goes to a bar fifteen times a month. What determine consumers
More information1. Consider the figure with the following two budget constraints, BC1 and BC2.
Short Questions 1. Consider the figure with the following two budget constraints, BC1 and BC2. Consider next the following possibilities: A. Price of X increases and income of the consumer also increases.
More informationMidterm #1 Exam Study Questions AK AK AK Selected problems
Midterm #1 Exam Study Questions AK AK AK Selected problems Practice Short Answer for Microeconomic Concepts A subset of these questions will be on the exam. 1. What is the Ceteris Paribus assumption? 2.
More informationMicroeconomics (Week 3) Consumer choice and demand decisions (part 1): Budget lines Indifference curves Consumer choice
Microeconomics (Week 3) onsumer choice and demand decisions (part 1): Budget lines Indifference curves onsumer choice The budget constraint The budget constraint describes the different bundles that the
More informationProblem Set 5: Individual and Market Demand. Comp BC
Economics 204 Problem Set 5: Individual and Market Demand 1. (a) See the graph in your book exhibit 4.9 or 4.10 (b) See the graph in your book exhibit 4.11 (c) Price decrease normal good Y Orig omp New
More informationLecture # Applications of Utility Maximization
Lecture # 10 -- Applications of Utility Maximization I. Matching vs. Non-matching Grants Here we consider how direct aid compares to a subsidy. Matching grants the federal government subsidizes local spending.
More informationMarginal Utility, Utils Total Utility, Utils
Mr Sydney Armstrong ECN 1100 Introduction to Microeconomics Lecture Note (5) Consumer Behaviour Evidence indicated that consumers can fulfill specific wants with succeeding units of a commodity but that
More informationIntroduction. The Theory of Consumer Choice. In this chapter, look for the answers to these questions:
21 The Theory of Consumer Choice P R I N C I P L E S O F ECONOMICS FOURTH EDITION N. GREGORY MANKIW Premium PowerPoint Slides by Ron Cronovich 2008 update 2008 South-Western, a part of Cengage Learning,
More informationPossibilities, Preferences, and Choices
9 Possibilities, Preferences, and Choices Learning Objectives Household s budget line and show how it changes when prices or income change Use indifference curves to map preferences and explain the principle
More informationThe Rational Consumer. The Objective of Consumers. Maximizing Utility. The Budget Set for Consumers. Slope =
The Rational Consumer The Objective of Consumers 2 Chapter 8 and the appendix Announcements We have studied demand curves. We now need to develop a model of consumer behavior to understand where demand
More informationThe Rational Consumer. The Objective of Consumers. The Budget Set for Consumers. Indifference Curves are Like a Topographical Map for Utility.
The Rational Consumer The Objective of Consumers 2 Finish Chapter 8 and the appendix Announcements Please come on Thursday I ll do a self-evaluation where I will solicit your ideas for ways to improve
More informationMicroeconomics Pre-sessional September Sotiris Georganas Economics Department City University London
Microeconomics Pre-sessional September 2016 Sotiris Georganas Economics Department City University London Organisation of the Microeconomics Pre-sessional o Introduction 10:00-10:30 o Demand and Supply
More informationEcn Intermediate Microeconomic Theory University of California - Davis October 16, 2008 Professor John Parman. Midterm 1
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis October 16, 2008 Professor John Parman Midterm 1 You have until 6pm to complete the exam, be certain to use your time wisely.
More informationMidterm 1 - Solutions
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis October 16, 2009 Instructor: John Parman Midterm 1 - Solutions You have until 11:50am to complete this exam. Be certain to put
More informationWe will make several assumptions about these preferences:
Lecture 5 Consumer Behavior PREFERENCES The Digital Economist In taking a closer at market behavior, we need to examine the underlying motivations and constraints affecting the consumer (or households).
More informationNote 1: Indifference Curves, Budget Lines, and Demand Curves
Note 1: Indifference Curves, Budget Lines, and Demand Curves Jeff Hicks September 19, 2017 Vancouver School of Economics, University of British Columbia In this note, I show how indifference curves and
More informationEastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester. ECON 101 Mid term Exam
Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2014 15 Fall Semester ECON 101 Mid term Exam Suggested Solutions 28 November 2014 Duration: 90 minutes Name Surname:
More informationModule 2 THEORETICAL TOOLS & APPLICATION. Lectures (3-7) Topics
Module 2 THEORETICAL TOOLS & APPLICATION 2.1 Tools of Public Economics Lectures (3-7) Topics 2.2 Constrained Utility Maximization 2.3 Marginal Rates of Substitution 2.4 Constrained Utility Maximization:
More informationWe want to solve for the optimal bundle (a combination of goods) that a rational consumer will purchase.
Chapter 3 page1 Chapter 3 page2 The budget constraint and the Feasible set What causes changes in the Budget constraint? Consumer Preferences The utility function Lagrange Multipliers Indifference Curves
More informationwhere Qs is the quantity supplied, Qd is the quantity demanded, and P is the price.
Economics 101 Spring 2015 Homework #3 Due March 19, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name on top of the homework (legibly). Make sure you write
More informationnot to be republished NCERT Chapter 2 Consumer Behaviour 2.1 THE CONSUMER S BUDGET
Chapter 2 Theory y of Consumer Behaviour In this chapter, we will study the behaviour of an individual consumer in a market for final goods. The consumer has to decide on how much of each of the different
More informationEcon 323 Microeconomic Theory. Practice Exam 1 with Solutions
Econ 323 Microeconomic Theory Practice Exam 1 with Solutions Chapter 2, Question 1 The equilibrium price in a market is the price where: a. supply equals demand b. no surpluses or shortages result c. no
More informationEcon 323 Microeconomic Theory. Chapter 2, Question 1
Econ 323 Microeconomic Theory Practice Exam 1 with Solutions Chapter 2, Question 1 The equilibrium price in a market is the price where: a. supply equals demand b. no surpluses or shortages result c. no
More informationMICROECONOMIC THEORY 1
MICROECONOMIC THEORY 1 Lecture 2: Ordinal Utility Approach To Demand Theory Lecturer: Dr. Priscilla T Baffour; ptbaffour@ug.edu.gh 2017/18 Priscilla T. Baffour (PhD) Microeconomics 1 1 Content Assumptions
More informationMICROECONOMICS I REVIEW QUESTIONS SOLUTIONS
MICROECONOMICS I REVIEW QUESTIONS SOLUTIONS 1.i. 1.ii. 1.iii. 1.iv. 1.v. 1.vi. 1.vii. 1.vi. 2.i. FALSE. The negative slope is a consequence of the more is better assumption. If a consumer consumes more
More informationEconomics 101 Fall 2010 Homework #3 Due 10/26/10
Economics 101 Fall 2010 Homework #3 Due 10/26/10 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework (legibly).
More informationEcon 1101 Practice Questions about Consumer Theory Solution
Econ 0 Practice Questions about Consumer Theory Solution Question : Sam eats only green eggs and ham. He has an income of $3. Green eggs have a price of P G = $ and ham has a price of P H = $. Sam s preferences
More informationPOSSIBILITIES, PREFERENCES, AND CHOICES
9 POSSIBILITIES, PREFERENCES, AND CHOICES You buy your music online and play it on an ipod. As the prices of a music download and an ipod have tumbled, the volume of downloads and sales of ipods have
More informationEconS Constrained Consumer Choice
EconS 305 - Constrained Consumer Choice Eric Dunaway Washington State University eric.dunaway@wsu.edu September 21, 2015 Eric Dunaway (WSU) EconS 305 - Lecture 12 September 21, 2015 1 / 49 Introduction
More informationECNB , Spring 2003 Intermediate Microeconomics Saint Louis University. Midterm 2
, Spring 2003 Intermediate Microeconomics Saint Louis University Multiple Choice (4 points each) Midterm 2 Name: 1) If Fred's marginal rate of substitution of salad for pizza equals -3, then A) his marginal
More informationEco 300 Intermediate Micro
Eco 300 Intermediate Micro Instructor: Amalia Jerison Office Hours: T 12:00-1:00, Th 12:00-1:00, and by appointment BA 127A, aj4575@albany.edu A. Jerison (BA 127A) Eco 300 Spring 2010 1 / 27 Review of
More information2) Indifference curve (IC) 1. Represents consumer preferences. 2. MRS (marginal rate of substitution) = MUx/MUy = (-)slope of the IC = (-) Δy/Δx
Page 1 Ch. 4 Learning Objectives: 1) Budget constraint 1. Effect of price change 2. Effect of income change 2) Indifference curve (IC) 1. Represents consumer preferences. 2. MRS (marginal rate of substitution)
More informationChapter 4. Consumer and Firm Behavior: The Work- Leisure Decision and Profit Maximization. Copyright 2014 Pearson Education, Inc.
Chapter 4 Consumer and Firm Behavior: The Work- Leisure Decision and Profit Maximization Copyright Chapter 4 Topics Behavior of the representative consumer Behavior of the representative firm 1-2 Representative
More informationIntro to Economic analysis
Intro to Economic analysis Alberto Bisin - NYU 1 The Consumer Problem Consider an agent choosing her consumption of goods 1 and 2 for a given budget. This is the workhorse of microeconomic theory. (Notice
More informationEconS 301 Intermediate Microeconomics Review Session #4
EconS 301 Intermediate Microeconomics Review Session #4 1. Suppose a person's utility for leisure (L) and consumption () can be expressed as U L and this person has no non-labor income. a) Assuming a wage
More informationThe MarketForces of Supply and Demand
The MarketForces of Supply and Demand Prof. FS Mennini Research Director, CEIS, Economic Evaluation and HTA (EEHTA), Faculty of Economics University «Tor Vergata», Rome Kingston University, London, UK
More informationEcon 344 Public Finance Spring 2005 Dzmitry Asinski. Homework Assignment 5 solution.
Econ 344 Public Finance Spring 2005 Dzmitry Asinski Homework Assignment 5 solution. 1. (6 points) Wayne is maximizing his utility by choosing how many hours to work a week. His preferences for leisure
More informationx 1 = m 2p p 2 2p 1 x 2 = m + 2p 1 10p 2 2p 2
In the previous chapter, you found the commodity bundle that a consumer with a given utility function would choose in a specific price-income situation. In this chapter, we take this idea a step further.
More informationMidterm 1 - Solutions
Ecn 100 - Intermediate Microeconomics University of California - Davis April 15, 2011 Instructor: John Parman Midterm 1 - Solutions You have until 11:50am to complete this exam. Be certain to put your
More informationConsumer Choice and Demand
Consumer Choice and Demand CHAPTER12 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Calculate and graph a budget line that shows the limits to
More informationEcn Intermediate Microeconomics University of California - Davis July 7, 2010 Instructor: John Parman. Midterm - Solutions
Ecn 100 - Intermediate Microeconomics University of California - Davis July 7, 2010 Instructor: John Parman Midterm - Solutions You have until 3:50pm to complete this exam. Be certain to put your name,
More informationPBAF 516 YA Prof. Mark Long Practice Midterm Questions
PBAF 516 YA Prof. Mark Long Practice Midterm Questions Note: these 10 questions were drawn from questions that I have given in prior years (in a similar class). These questions should not be considered
More informationSTUDENTID: Please write your name in small print on the inside portion of the last page of this exam
STUDENTID: Please write your name in small print on the inside portion of the last page of this exam Instructions: You will have 60 minutes to complete the exam. The exam will be comprised of three parts
More informationEcn Intermediate Microeconomic Theory University of California - Davis November 13, 2008 Professor John Parman. Midterm 2
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis November 13, 2008 Professor John Parman Midterm 2 You have until 6pm to complete the exam, be certain to use your time wisely.
More informationEcon 1101 Spring 2013 Week 10. Section 038 3/27/2013
Econ 1101 Spring 2013 Week 10 Section 038 3/27/2013 nnouncements Homework due on plia this Friday! In recitation this week: Consumer theory worksheet that is very helpful for understanding consumer theory.
More informationEconomics. The Theory of Consumer Choice 11/8/2012. Introduction. Principles of. The budget constraint. Answers
/8/22 N. Gregory Mankiw Principles of Economics Sixth Edition 2 The Theory of onsumer hoice Modified by Joseph Tao-yi Wang Premium PowerPoint Slides by Ron ronovich In this chapter, look for the answers
More informationConsumer Theory. Introduction Budget Set/line Study of Preferences Maximizing Utility
Consumer Theory Introduction Budget Set/line Study of Preferences Maximizing Utility Introduction Where does the law of demand come from? Consumption choices depend on two factors: 1. What choices you
More information<Table 1> Total Utility Marginal Utility Total Utility Marginal Utility
Economics 101 Answers to Homework #4 Fall 2009 Due 11/11/2009 before lecture Directions: The homework will be collected in a box before the lecture. Place your name, TA name and section number on top of
More informationE&G, Ch. 1: Theory of Choice; Utility Analysis - Certainty
1 E&G, Ch. 1: Theory of Choice; Utility Analysis - Certainty I. Summary: All decision problems involve: 1) determining the alternatives available the Opportunities Locus. 2) selecting criteria for choosing
More informationEconomics 101 Section 5
Economics 101 Section 5 Lecture #10 February 17, 2004 The Budget Constraint Marginal Utility Consumer Choice Indifference Curves Overview of Chapter 5 Consumer Choice Consumer utility and marginal utility
More informationDO NOT BEGIN WORKING UNTIL YOU ARE TOLD TO DO SO. READ THESE INSTRUCTIONS FIRST.
Midterm Exam #2; Page 1 of 10 Economics 101 Professor Wallace Midterm #2, Version #1 November 16 th, 2005. DO NOT BEGIN WORKING UNTIL YOU ARE TOLD TO DO SO. READ THESE INSTRUCTIONS FIRST. You have 75 minutes
More informationMathematical Economics dr Wioletta Nowak. Lecture 1
Mathematical Economics dr Wioletta Nowak Lecture 1 Syllabus Mathematical Theory of Demand Utility Maximization Problem Expenditure Minimization Problem Mathematical Theory of Production Profit Maximization
More informationNo books, notes, or other aids are permitted. You may, however, use an approved calculator. Do not turn to next pages until told to do so by examiner.
Economics 103 F11 Principles of Microeconomics: Sample Test #2 Dr. H.J. Schuetze 70 Minutes Part A Multiple Choice 30 x 2 marks each = 60 (note this is 10 more than will be on our exam but I thought the
More informationECONOMICS SOLUTION BOOK 2ND PUC. Unit 2
ECONOMICS SOLUTION BOOK N PUC Unit I. Choose the correct answer (each question carries mark). Utility is a) Objective b) Subjective c) Both a & b d) None of the above. The shape of an indifference curve
More informationECON 3020 Intermediate Macroeconomics
ECON 3020 Intermediate Macroeconomics Chapter 4 Consumer and Firm Behavior The Work-Leisure Decision and Profit Maximization 1 Instructor: Xiaohui Huang Department of Economics University of Virginia 1
More informationEconomics 101 Fall 2013 Homework 5 Due Thursday, November 21, 2013
Economics 101 Fall 2013 Homework 5 Due Thursday, November 21, 2013 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the
More informationTHEORETICAL TOOLS OF PUBLIC FINANCE
Solutions and Activities for CHAPTER 2 THEORETICAL TOOLS OF PUBLIC FINANCE Questions and Problems 1. The price of a bus trip is $1 and the price of a gallon of gas (at the time of this writing!) is $3.
More informationThe Theory of Consumer Choice. UAPP693 Economics in the Public & Nonprofit Sectors Steven W. Peuquet, Ph.D.
The Theory of Consumer Choice UAPP693 Economics in the Public & Nonprofit Sectors Steven W. Peuquet, Ph.D. 1 These slides are for use only as part of a formal instructional course and may not be copied,
More informationTheory of Consumer Behavior First, we need to define the agents' goals and limitations (if any) in their ability to achieve those goals.
Theory of Consumer Behavior First, we need to define the agents' goals and limitations (if any) in their ability to achieve those goals. We will deal with a particular set of assumptions, but we can modify
More informationChapter 4 Topics. Behavior of the representative consumer Behavior of the representative firm Pearson Education, Inc.
Chapter 4 Topics Behavior of the representative consumer Behavior of the representative firm 1-1 Representative Consumer Consumer s preferences over consumption and leisure as represented by indifference
More informationSolutions to Assignment #2
ECON 20 (Fall 207) Department of Economics, SFU Prof. Christoph Lülfesmann exam). Solutions to Assignment #2 (My suggested solutions are usually more detailed than required in an I. Short Problems. The
More information1. Madison has $10 to spend on beer and pizza. Beer costs $1 per bottle and pizza costs $2 a slice.
Econ 3144 Fall 2001 Name Test 2 Rupp Essay Questions (50 points) & 25 Multiple Choice Questions (50 points) Note the following formula maybe helpful in this exam: E P = (P/Q) * (1/slope). 1. Madison has
More informationECO101 PRINCIPLES OF MICROECONOMICS Notes. Consumer Behaviour. U tility fro m c o n s u m in g B ig M a c s
ECO101 PRINCIPLES OF MICROECONOMICS Notes Consumer Behaviour Overview The aim of this chapter is to analyse the behaviour of rational consumers when consuming goods and services, to explain how they may
More informationDemand and income. Income and Substitution Effects. How demand rises with income. How demand rises with income. The Shape of the Engel Curve
Demand and income Engel Curves and the Slutsky Equation If your income is initially 1, you buy 1 apples When your income rises to 2, you buy 2 apples. To make the obvious point, demand is a function of
More informationChoice. A. Optimal choice 1. move along the budget line until preferred set doesn t cross the budget set. Figure 5.1.
Choice 34 Choice A. Optimal choice 1. move along the budget line until preferred set doesn t cross the budget set. Figure 5.1. Optimal choice x* 2 x* x 1 1 Figure 5.1 2. note that tangency occurs at optimal
More informationReview of Previous Lectures
Review of Previous Lectures 1 Main idea Main question Indifference curves How do consumers make choices? Focus on preferences Understand preferences Key concept: MRS Utility function The slope of the indifference
More informationIndividual & Market Demand
Individual & Market Demand Lesson 5 Ryan Safner 1 1 Department of Economics Hood College ECON 306 - Microeconomic Analysis Spring 2017 Ryan Safner (Hood College) ECON 306 - Lesson 5 Fall 2016 1 / 31 Lesson
More informationPRACTICE QUESTIONS CHAPTER 5
CECN 104 PRACTICE QUESTIONS CHAPTER 5 1. Marginal utility is the: A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility realized by consuming one
More informationChapter 21: Theory of Consumer Choice
Chapter 21: Theory of Consumer Choice We will now try to "get behind the demand curve To get behind the D curve we must study individual behavior How do individuals make consumption decisions? We have
More information2. Find the equilibrium price and quantity in this market.
1 Supply and Demand Consider the following supply and demand functions for Ramen noodles. The variables are de ned in the table below. Constant values are given for the last 2 variables. Variable Meaning
More informationIntroductory Microeconomics (ES10001)
Topic 2: Household ehaviour Introductory Microeconomics (ES11) Topic 2: Consumer Theory Exercise 4: Suggested Solutions 1. Which of the following statements is not valid? utility maximising consumer chooses
More informationFull file at Microeconomics: An Intuitive Approach (with and without Calculus) Chapter 2
Microeconomics: An Intuitive Approach (with and without Calculus) Chapter 2 TRUE/FALSE 1. If all consumers are price-takers facing the same prices, then their budget lines will all have the same slope.
More informationJohanna has 10 to spend, the price of an apple is 1 and the price of a banana is 2. What are her options?
Budget Constraint 1 Example 1 Johanna has 10 to spend, the price of an apple is 1 and the price of a banana is 2. What are her options? Should she buy only apples? Should she spend all her money? How many
More informationECON 2100 Principles of Microeconomics (Fall 2018) Consumer Choice Theory
ECON 21 Principles of Microeconomics (Fall 218) Consumer Choice Theory Relevant readings from the textbook: Mankiw, Ch 21 The Theory of Consumer Choice Suggested problems from the textbook: Chapter 21
More informationAssignment 1 Solutions. October 6, 2017
Assignment 1 Solutions October 6, 2017 All subquestions are worth 2 points, for a total of 76 marks. PLEASE READ THE SOLUTION TO QUESTION 3. Question 1 1. An indifference curve is all combinations of the
More informationChoice. A. Optimal choice 1. move along the budget line until preferred set doesn t cross the budget set. Figure 5.1.
Choice 2 Choice A. choice. move along the budget line until preferred set doesn t cross the budget set. Figure 5.. choice * 2 * Figure 5. 2. note that tangency occurs at optimal point necessary condition
More informationEconomics 602 Macroeconomic Theory and Policy Problem Set 3 Suggested Solutions Professor Sanjay Chugh Spring 2012
Department of Applied Economics Johns Hopkins University Economics 60 Macroeconomic Theory and Policy Problem Set 3 Suggested Solutions Professor Sanjay Chugh Spring 0. The Wealth Effect on Consumption.
More informationWhat is the marginal utility of the third chocolate bar to this consumer? a) 10 b) 9 c) 8 d) 7
Chapter 5 Review Quiz 1. Which of the following best expresses the law of diminishing marginal utility? a) the more a person consumes of a product, the smaller becomes the utility received from its consumption
More informationTaxation and Efficiency : (a) : The Expenditure Function
Taxation and Efficiency : (a) : The Expenditure Function The expenditure function is a mathematical tool used to analyze the cost of living of a consumer. This function indicates how much it costs in dollars
More informationProblem Set 5 Answers. A grocery shop is owned by Mr. Moore and has the following statement of revenues and costs:
1. Ch 7, Problem 7.2 Problem Set 5 Answers A grocery shop is owned by Mr. Moore and has the following statement of revenues and costs: Revenues $250,000 Supplies $25,000 Electricity $6,000 Employee salaries
More informationMODULE No. : 9 : Ordinal Utility Approach
Subject Paper No and Title Module No and Title Module Tag 2 :Managerial Economics 9 : Ordinal Utility Approach COM_P2_M9 TABLE OF CONTENTS 1. Learning Outcomes: Ordinal Utility approach 2. Introduction:
More informationFalse_ The average revenue of a firm can be increasing in the firm s output.
LECTURE 12: SPECIAL COST FUNCTIONS AND PROFIT MAXIMIZATION ANSWERS AND SOLUTIONS True/False Questions False_ If the isoquants of a production function exhibit diminishing MRTS, then the input choice that
More informationNAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Midterm I March 14, 2008
NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Section I: Multiple Choice (4 points each) Identify the choice that best completes the statement or answers the question. 1.
More informationMIDTERM #2 VERSION 1
Econ 101 Lec 3 Fall 2001 Midterm #2 Version 1 November 6, 2001 Student Name: ID Number: Section # (Official): TA Name (Official): MIDTERM #2 VERSION 1 DO NOT BEGIN WORKING UNTIL THE INSTRUCTOR TELLS YOU
More informationFile: ch03, Chapter 3: Consumer Preferences and The Concept of Utility
for Microeconomics, 5th Edition by David Besanko, Ronald Braeutigam Completed download: https://testbankreal.com/download/microeconomics-5th-edition-test-bankbesanko-braeutigam/ File: ch03, Chapter 3:
More informationa. Find the price elasticity of demand (4 points) b. Based on your calculation above, is demand elastic, inelastic, or unit elastic?
Econ 3144 Spring 2002 Name Test 2 Rupp Essay Questions (25 points) & 25 Multiple Choice Questions (75 points) Note the following formula maybe helpful in this exam: E P = (P/Q) * (1/slope). 1. The market
More informationOverview Definitions Mathematical Properties Properties of Economic Functions Exam Tips. Midterm 1 Review. ECON 100A - Fall Vincent Leah-Martin
ECON 100A - Fall 2013 1 UCSD October 20, 2013 1 vleahmar@uscd.edu Preferences We started with a bundle of commodities: (x 1, x 2, x 3,...) (apples, bannanas, beer,...) Preferences We started with a bundle
More information