Intermediate Microeconomics UTILITY BEN VAN KAMMEN, PHD PURDUE UNIVERSITY
|
|
- Brittany Dalton
- 6 years ago
- Views:
Transcription
1 Intermediate Microeconomics UTILITY BEN VAN KAMMEN, PHD PURDUE UNIVERSITY
2 Outline To put this part of the class in perspective, consumer choice is the underlying explanation for the demand curve. As utility and preferences are discussed, consider how it relates to the demand curve. Define and describe the problem that rational consumers solve. Define the consumer s objective function and describe its properties. Describe the constraints facing a consumer s choices.
3 Utility The satisfaction that a person receives from his or her economic activities. Two obvious definitions: Good: Something that increases a person s utility, ceteris paribus. Examples: food, good books, Pontiac Trans Ams. Bad: Something that decreases a person s utility, ceteris paribus. Examples: litter, taking away of a Trans Am. Ceteris Paribus: other things being equal.
4 Utility Functions How can we formalize ( model ) the concept of utility mathematically? If you can account for all the things that affect a consumer s utility, a utility function could be specified with all of those things as arguments. Utility is a function of all goods and bads for a given consumer.
5 Example UUUUUUUUUUUUUU = UU(ffffffff, gggggggg bbbbbbbbbb, TTTTTTTTTT AAAAAA, llllllllllll, nnnnnn TTTTTTTTTT AAAA tttttttttttttttttttttttttttt, sssssssss... ) As the example illustrates, there are many things that affect utility. This is something that our model will have to simplify.
6 Preferences Another thing to consider when modeling utility is how each good affects the consumer s utility. Inevitably, some people will like a given good more than others. e.g., I like Jelly Belly jelly beans more than 99% of the population, but I hate frosting something that many people enjoy. So in addition to representing a list of all goods and bads, a utility function also has to account for each good s effect on utility. Note: this is also something that will have to be simplified to make the model workable.
7 Preferences Lastly a utility function should account for the possibility that the marginal utility of a good changes depending on how many we already have... think back to the water example and diminishing marginal utility.
8 To recapitulate Modeling utility involves writing a mathematical expression that: 1) contains an exhaustive list of goods and bads, 2) specifies the marginal utility for each combination of those goods and bads, and 3) can be analyzed by a human being using a minimum of calculus. Clearly something in the preceding list will have to be compromised. My suggestions are #1 and #2.
9 Properties of Utility Functions Completeness: there is a parable about a donkey that found himself between a trough of oats and a trough of hay and starved to death because he couldn t decide. We will assume consumers are always able to say which bundle of consumption they prefer. You could say that utility is defined, in the mathematical sense, for all relevant bundles.
10 Properties of Utility Functions Transitivity: if consumption bundle X is preferred to bundle Y, and bundle Y is preferred to bundle Z, transitivity implies that X is preferred to Z. Analog in geometry: XX > YY > ZZ XX > ZZ. More of an economic good is, well, better. Goods have nonnegative marginal utility. Consumers prefer more of a good to less, ceteris paribus.
11 Modeling Utility Time to abstract away from reality to make some analytical sense of consumers preferences. Assumption: a consumer s utility is a function of only 2 goods: jelly beans and Pabst Blue Ribbon beer. To make this assumption seem less extreme, tell yourself that the consumer has all the other things that he wants and the other goods he consumes does not change, i.e., ceteris paribus. The function is: UUUUUUUUUUUUUU = UU(JJJJJJJJJJJJ, PPPPPP).
12 Graphing Utility There are 3 ways to graph this utility function in 2- dimensional space. 1.Graph utility as a function only of Jbeans, holding the level of PBR constant. 2.Graph utility as a function only of PBR, holding the level of JBeans constant. 3.Graph quantity of one good as a function of quantity of the other good, holding the level of utility constant.
13 The 1 st way of graphing utility Do jelly beans have diminishing marginal utility in this graph?
14 The 2 nd way of graphing utility
15 The 3 rd way of graphing utility Note that this function has a negative slope that takes form, ΔPPPPPP ΔJJJJJJJJJJJJ.
16 Indifference curves The 3 rd method, yields a graph of an indifference curve: a curve that shows all the combinations of goods that provide the same level of utility. Each point on the curve is a combination of JBeans and PBR, and each point gives the consumer a utility level of UU 0. The consumer is indifferent to all points on this curve, so it is called an indifference curve.
17 Properties of indifference curves When analyzing utility as a function of two goods: Indifference curves slope downward. Indifference curves do not intersect. Indifference curves are convex ( bowed toward the axis ). An increase in utility is shown by an indifference curve that is further from the origin.
18 Indifference Curves Slope Downward Begin from some point A on the indifference curve, UU 0. Move to a point B that is directly to the left of A and not on the indifference curve. Conceptually take away some of the consumer s jelly beans without changing his PBR level (ΔJJJJJJJJJJJJ < 0). The consumer will certainly not be indifferent to this change. In order to make him indifferent, you would have to give him some more PBR (ΔPPPPPP > 0) and move him up to point C. Taking the two changes together we have a negative change in jelly beans and a positive change in Pabst, i.e., a negative slope. What the consumer has effectively done is substitute PBR for jelly beans and move upward along the indifference curve.
19 Indifference curves do not intersect This is something that would make an economist s head explode. Look at the point where the two curves on the next slide intersect; that would be two different levels of utility for the same bundle. The same bundle of consumption cannot give the consumer two different levels of utility!!! I know; it would freak me out, too.
20 What Kind of Messed up Preferences are These?
21 Indifference curves are convex The slope of an indifference curve is called the marginal rate of substitution MRS. Indifference curves get flatter as you move from left to right along them. Getting flatter means the slope is decreasing. So the MRS is decreasing as you go from left to right. The quantity of JBeans the consumer is willing to substitute for PBR is continually decreasing as you go from left to right. This is a result of diminishing marginal utility, which we will examine more later. For now suffice it to say that indifference curves are convex.
22 Variation in utility (graphically) Note: U 2 > U 1 > U 0.
23 Marginal Rate of Substitution The rate at which a consumer is willing to reduce consumption of one good when he or she gets one more unit of another good. The slope of an indifference curve. Abbreviation: MRS Diminishing MRS: Diminishing marginal utility leads consumers to prefer balanced consumption bundles to skewed bundles. This gives indifference curves their convex shape.
24 Particular Preferences Preferences affect the shape of indifference curves. Consider the following cases. A useless good. An economic bad. Perfect substitutes. Perfect complements.
25 A Useless Good The consumer cannot increase utility by consuming more of the useless good.
26 A Bad and a Good MRS is positive; increasing the bad requires that you increase the good to stay at a given level of utility.
27 Perfect Substitutes Perfect substitutes have a constant marginal rate of substitution. Their indifference curves are linear.
28 Perfect complements; Hi, Bob Goods are consumed in fixed proportions. Each good has zero marginal utility. Unless you have more of the other good, you can t increase utility.
29 Utility maximization The goal of the consumer is to maximize utility. In the absence of scarcity, he would choose to do so by consuming an infinite quantity of all goods. But goods are scarce. A consumer maximizes utility subject to a budget constraint.
30 Budget constraint The limit that income places on the combinations of goods that a consumer can buy. Each consumer has a finite capacity (income) for purchasing goods. In the two-good model, he allocates his income between the two goods as follows: Income = [Expenditure on X] + [Expenditure on Y] Expenditure on each good equals the quantity of the good multiplied by its price: Income = I = P X *X + P Y *Y
31 Budget constraint graphically The vertical intercept is II PP PPPPPP, and the horizontal intercept is II PP JJJJJJJJJJJJ.
32 Price ratio The intercepts of the budget constraint are found by setting the quantity of one good to zero: II = PP PPPPPP QQ PPPPPP + PP JJJJJJJJJJJJ 0 QQ PPPPPP = PP PPPPPP II = PP PPPPPP 0 + PP JJJJJJJJJJJJ QQ JJJJJJJJJJJJ 0 QQ JJJJJJJJJJJJ = PP JJJJJJJJJJJJ The slope of the budget constraint is the ratio of the two prices: Rise over run implies: II PP PPPPPP II PP JJJJJJJJJJJJ = PP JJJJJJJJJJJJ PP PPPPPP II II
33 Constrained Utility Maximization If the consumer has a budget constraint, he consumes a combination of two goods that gets him on the highest indifference curve possible. This occurs where the marginal rate of substitution equals the price ratio: MMMMMM = PPPPPPPPPP RRRRRRRRRR. Graphically this occurs where the budget constraint and indifference curve are tangent to one another.
34 Constrained utility maximization
35 Why is this Optimal? Consider the alternatives: The consumer can get more utility than UU 0 by consuming more of each good. The consumer cannot attain utility UU 2 because he doesn t have enough income.
36 Alternative utility levels Only U 1 is attainable and optimal.
37 Further examples Constrained utility maximization for perfect substitutes, perfect complements. Consumers facing the same budget constraints make different optimal choices because of differences in preferences. If it makes you uncomfortable to consider a utility function of only two goods, you can think of the good on the vertical axis as a bundle of all other goods with a price equal to the index of prices of the goods in the bundle.
38 Conclusion By simplifying the number of goods and assuming a functional form for utility, it is simple to predict what an individual will consume, given prices. How will their consumption change when prices change? The next topic we will discuss is how utility maximization produces a demand curve.
Theory 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 informationSummer 2016 Microeconomics 2 ECON1201. Nicole Liu Z
Summer 2016 Microeconomics 2 ECON1201 Nicole Liu Z3463730 BUDGET CONSTAINT THE BUDGET CONSTRAINT Consumption Bundle (x 1, x 2 ): A list of two numbers that tells us how much the consumer is choosing of
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 informationPAPER NO.1 : MICROECONOMICS ANALYSIS MODULE NO.6 : INDIFFERENCE CURVES
Subject Paper No and Title Module No and Title Module Tag 1: Microeconomics Analysis 6: Indifference Curves BSE_P1_M6 PAPER NO.1 : MICRO ANALYSIS TABLE OF CONTENTS 1. Learning Outcomes 2. Introduction
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 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 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 informationIntermediate Microeconomics EXCHANGE AND EFFICIENCY BEN VAN KAMMEN, PHD PURDUE UNIVERSITY
Intermediate Microeconomics EXCHANGE AND EFFICIENCY BEN VAN KAMMEN, PHD PURDUE UNIVERSITY A pure exchange model economy The only kind of agent in this model is the consumer there are no firms that engage
More informationConsumer Budgets, Indifference Curves, and Utility Maximization 1 Instructional Primer 2
Consumer Budgets, Indifference Curves, and Utility Maximization 1 Instructional Primer 2 As rational, self-interested and utility maximizing economic agents, consumers seek to have the greatest level of
More informationChapter 1 Microeconomics of Consumer Theory
Chapter Microeconomics of Consumer Theory The two broad categories of decision-makers in an economy are consumers and firms. Each individual in each of these groups makes its decisions in order to achieve
More informationPrinciple of Microeconomics
Principle of Microeconomics Chapter 21 Consumer choices Elements of consumer choices Total amount of money available to spend. Price of each item consumers on a perfectly competitive market are price takers.
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 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 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 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 informationIntroductory to Microeconomic Theory [08/29/12] Karen Tsai
Introductory to Microeconomic Theory [08/29/12] Karen Tsai What is microeconomics? Study of: Choice behavior of individual agents Key assumption: agents have well-defined objectives and limited resources
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 informationChapter 3. A Consumer s Constrained Choice
Chapter 3 A Consumer s Constrained Choice If this is coffee, please bring me some tea; but if this is tea, please bring me some coffee. Abraham Lincoln Chapter 3 Outline 3.1 Preferences 3.2 Utility 3.3
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 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 informationChapter 3: Model of Consumer Behavior
CHAPTER 3 CONSUMER THEORY Chapter 3: Model of Consumer Behavior Premises of the model: 1.Individual tastes or preferences determine the amount of pleasure people derive from the goods and services they
More informationConsumer Choice and Demand
Consumer Choice and Demand 1 Utility Utility Analysis Sense of pleasure, or satisfaction that comes from consumption Subjective Assumption Taste are given Tastes are relatively stable 2 Total utility Utility
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 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 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 informationChapter 19: Compensating and Equivalent Variations
Chapter 19: Compensating and Equivalent Variations 19.1: Introduction This chapter is interesting and important. It also helps to answer a question you may well have been asking ever since we studied quasi-linear
More informationFINANCE THEORY: Intertemporal. and Optimal Firm Investment Decisions. Eric Zivot Econ 422 Summer R.W.Parks/E. Zivot ECON 422:Fisher 1.
FINANCE THEORY: Intertemporal Consumption-Saving and Optimal Firm Investment Decisions Eric Zivot Econ 422 Summer 21 ECON 422:Fisher 1 Reading PCBR, Chapter 1 (general overview of financial decision making)
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 informationFoundational Preliminaries: Answers to Within-Chapter-Exercises
C H A P T E R 0 Foundational Preliminaries: Answers to Within-Chapter-Exercises 0A Answers for Section A: Graphical Preliminaries Exercise 0A.1 Consider the set [0,1) which includes the point 0, all the
More informationProfessor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 5
Economics 2 Spring 2017 Professor Christina Romer Professor David Romer SUGGESTED ANSWERS TO PROBLEM SET 5 1. The tool we use to analyze the determination of the normal real interest rate and normal investment
More informationPOSSIBILITIES, PREFERENCES, AND CHOICES
Chapt er 9 POSSIBILITIES, PREFERENCES, AND CHOICES Key Concepts Consumption Possibilities The budget line shows the limits to a household s consumption. Figure 9.1 graphs a budget line. Consumption points
More informationECON 310 Fall 2005 Final Exam - Version A. Multiple Choice: (circle the letter of the best response; 3 points each) and x
ECON 30 Fall 005 Final Exam - Version A Name: Multiple Choice: (circle the letter of the best response; 3 points each) Mo has monotonic preferences for x and x Which of the changes described below could
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 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 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 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 informationECON Micro Foundations
ECON 302 - Micro Foundations Michael Bar September 13, 2016 Contents 1 Consumer s Choice 2 1.1 Preferences.................................... 2 1.2 Budget Constraint................................ 3
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 informationIntermediate Microeconomics
Name Score Intermediate Microeconomics Ec303-Summer 03 Makeup Exam 1 Part I Please put your answers on the bubble sheet. Be sure to bubble your name in on the back side. 2 points each for a total of 80
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 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 informationUniversity of Toronto Department of Economics ECO 204 Summer 2013 Ajaz Hussain TEST 1 SOLUTIONS GOOD LUCK!
University of Toronto Department of Economics ECO 204 Summer 2013 Ajaz Hussain TEST 1 SOLUTIONS TIME: 1 HOUR AND 50 MINUTES DO NOT HAVE A CELL PHONE ON YOUR DESK OR ON YOUR PERSON. ONLY AID ALLOWED: A
More informationEcn Intermediate Microeconomic Theory University of California - Davis October 16, 2009 Instructor: John Parman. Midterm 1
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis October 16, 2009 Instructor: John Parman Midterm 1 You have until 11:50am to complete this exam. Be certain to put your name,
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 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 informationCHAPTER 4. The Theory of Individual Behavior
CHAPTER 4 The Theory of Individual Behavior Copyright 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter
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 informationPART II PRODUCERS, CONSUMERS, AND COMPETITIVE MARKETS CHAPTER 3 CONSUMER BEHAVIOR
PART II PRODUCERS, CONSUMERS, AND COMPETITIVE MARKETS CHAPTER 3 CONSUMER BEHAVIOR QUESTIONS FOR REVIEW 1. What are the four basic assumptions about individual preferences? Explain the significance or meaning
More information3. Consumer Behavior
3. Consumer Behavior References: Pindyck und Rubinfeld, Chapter 3 Varian, Chapter 2, 3, 4 25.04.2017 Prof. Dr. Kerstin Schneider Chair of Public Economics and Business Taxation Microeconomics Chapter 3
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 informationECON 103C -- Final Exam Peter Bell, 2014
Name: Date: 1. Which of the following factors causes a movement along the demand curve? A) change in the price of related goods B) change in the price of the good C) change in the population D) both b
More informationThe supply function is Q S (P)=. 10 points
MID-TERM I ECON500, :00 (WHITE) October, Name: E-mail: @uiuc.edu All questions must be answered on this test form! For each question you must show your work and (or) provide a clear argument. All graphs
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 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 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 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 informationFaculty: Sunil Kumar
Objective of the Session To know about utility To know about indifference curve To know about consumer s surplus Choice and Utility Theory There is difference between preference and choice The consumers
More informationTheoretical Tools of Public Finance. 131 Undergraduate Public Economics Emmanuel Saez UC Berkeley
Theoretical Tools of Public Finance 131 Undergraduate Public Economics Emmanuel Saez UC Berkeley 1 THEORETICAL AND EMPIRICAL TOOLS Theoretical tools: The set of tools designed to understand the mechanics
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 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 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 informationConsumer and Firm Behavior: The Work-Leisure Decision and Profit Maximization
Consumer and Firm Behavior: The Work-Leisure Decision and Profit Maximization Copyright 2002 Pearson Education, Inc. and Dr Yunus Aksoy Slide 1 Discussion So far: How to measure variables of macroeconomic
More informationPreferences. Rationality in Economics. Indifference Curves
Preferences Rationality in Economics Behavioral Postulate: A decisionmaker always chooses its most preferred alternative from its set of available alternatives. So to model choice we must model decisionmakers
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 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 informationA b. Marginal Utility (measured in money terms) is the maximum amount of money that a consumer is willing to pay for one more unit of a good (X).
Week 2. Consumer Choice: Demand Side of the Market 1. What is Utility? a. Total Utility (measured in money terms) is the maximum amount of money that a consumer is willing to give in exchange for a quantity
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 informationProblem 1 / 25 Problem 2 / 25 Problem 3 / 25 Problem 4 / 25
Department of Economics Boston College Economics 202 (Section 05) Macroeconomic Theory Midterm Exam Suggested Solutions Professor Sanjay Chugh Fall 203 NAME: The Exam has a total of four (4) problems and
More information3/1/2016. Intermediate Microeconomics W3211. Lecture 4: Solving the Consumer s Problem. The Story So Far. Today s Aims. Solving the Consumer s Problem
1 Intermediate Microeconomics W3211 Lecture 4: Introduction Columbia University, Spring 2016 Mark Dean: mark.dean@columbia.edu 2 The Story So Far. 3 Today s Aims 4 We have now (exhaustively) described
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 informationChapter 6: Supply and Demand with Income in the Form of Endowments
Chapter 6: Supply and Demand with Income in the Form of Endowments 6.1: Introduction This chapter and the next contain almost identical analyses concerning the supply and demand implied by different kinds
More informationSign Pledge I have neither given nor received aid on this exam
Econ 3144 Fall 2010 Test 1 Dr. Rupp Name Sign Pledge I have neither given nor received aid on this exam Multiple Choice (45 questions) Identify the letter of the choice that best completes the statement
More informationAppendix 1: The theory of consumer s behavior. preference, utility, indifference curve, budget constraint, optimal consumption plan, demand curve
Appendi: The theory of consumer s behavior preference, utility, indifference curve, budget constraint, optimal consumption plan, demand curve 1 1. Preference ordering and utility function! Objects to be
More information8 POSSIBILITIES, PREFERENCES, AND CHOICES. Chapter. Key Concepts. The Budget Line
Chapter 8 POSSIBILITIES, PREFERENCES, AND CHOICES Key Concepts FIGURE 8. The Budget Line Consumption Possibilities The budget shows the limits to a household s consumption. Figure 8. graphs a budget ;
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 informationLesson: DECOMPOSITION OF PRICE EFFECT. Lesson Developer: Nehkholen Haokip & Anil Kumar Singh. Department/College: Shyamlal College (Eve)
Lesson: DECOMPOSITION OF PRICE EFFECT Lesson Developer: Nehkholen Haokip & Anil Kumar Singh Department/College: Shyamlal College (Eve) University of Delhi Contents 1. Introduction 1.1 Price Effect 1.2
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 informationECON 221: PRACTICE EXAM 2
ECON 221: PRACTICE EXAM 2 Answer all of the following questions. Use the following information to answer the questions below. Labor Q TC TVC AC AVC MC 0 0 100 0 -- -- 1 10 110 10 11 1 2 25 120 20 4.8.8
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 informationChapter 4. Consumer and Firm Behavior: The Work-Leisure Decision and Profit Maximization
Chapter 4 Consumer and Firm Behavior: The Work-Leisure Decision and Profit Maximization The Representative Consumer Preferences Goods: The Consumption Good and Leisure The Utility Function More Preferred
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 informationSolution Manual for Intermediate Microeconomics and Its Application 12th edition by Nicholson and Snyder
Solution Manual for Intermediate Microeconomics and Its Application 12th edition by Nicholson and Snyder Link download Solution Manual for Intermediate Microeconomics and Its Application 12th edition by
More informationGraphs Details Math Examples Using data Tax example. Decision. Intermediate Micro. Lecture 5. Chapter 5 of Varian
Decision Intermediate Micro Lecture 5 Chapter 5 of Varian Decision-making Now have tools to model decision-making Set of options At-least-as-good sets Mathematical tools to calculate exact answer Problem
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 informationMathematical Economics Dr Wioletta Nowak, room 205 C
Mathematical Economics Dr Wioletta Nowak, room 205 C Monday 11.15 am 1.15 pm wnowak@prawo.uni.wroc.pl http://prawo.uni.wroc.pl/user/12141/students-resources Syllabus Mathematical Theory of Demand Utility
More informationMath: Deriving supply and demand curves
Chapter 0 Math: Deriving supply and demand curves At a basic level, individual supply and demand curves come from individual optimization: if at price p an individual or firm is willing to buy or sell
More informationChapter 10 THE PARTIAL EQUILIBRIUM COMPETITIVE MODEL. Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.
Chapter 10 THE PARTIAL EQUILIBRIUM COMPETITIVE MODEL Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved. 1 Market Demand Assume that there are only two goods (x and y)
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 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 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 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 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 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 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 informationEconS 301 Written Assignment #3 - ANSWER KEY
EconS 30 Written Assignment #3 - ANSWER KEY Exercise #. Consider a consumer with Cobb-Douglas utility function uu(xx, ) xx /3 /3 Assume that the consumer faces a price of $ for good, and a total income
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 informationPrice. Quantity. Economics 101 Fall 2013 Homework 4 Due Tuesday, November 5, 2013
Economics 101 Fall 2013 Homework 4 Due Tuesday, November 5, 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 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 informationMathematical Economics
Mathematical Economics Dr Wioletta Nowak, room 205 C wioletta.nowak@uwr.edu.pl http://prawo.uni.wroc.pl/user/12141/students-resources Syllabus Mathematical Theory of Demand Utility Maximization Problem
More information