Consumer Choice: Maximizing Utility
|
|
- Gregory Peters
- 6 years ago
- Views:
Transcription
1 Consumer Choice: Maximizing Utility
2 Definition. Utility: A measure of the satisfaction, happiness, or benefit that results from the consumption of a good. Util: An artificial construct used to measure utility. Total Utility: The total satisfaction received from consuming a particular quantity of a good. Marginal Utility: The additional utility a person receives from consuming an additional unit of a good.
3 Demand for Mogu-Mogu
4 Think Diamonds vs. Water Total Utility versus marginal utility Goods change as we become more familiar with them Interpersonal utility comparisons. We often do compare marginal utility of additional income across different income levels, but it is not always appropriate
5 Income is limited! Normally You have to make trade-offs in purchasing different goods Example: To buy 1 more Justin Bieber CD at Php375, need to give up something else, i.e., 3 Starbucks Lattes at Php125 each. The trade-off occurs rationally because you know how much you value each of these goods.
6 The Budget Constraint Virtually all individuals must face two facts of economic life Have to pay prices for the goods and services they buy Have limited funds to spend A consumer s budget constraint identifies which combinations of goods and services the consumer can afford with a limited budget Budget line is the graphical representation of a budget constraint The price of one good relative to the price of another The slope of the budget line indicates the spending trade-off between one good and another Amount of one good, that must be sacrificed in order to buy more of another good 6
7 The Budget Constraint Number of Movies per Month A With Php1500 per month, Iego can afford 15 movies and no concerts,... B G 12 movies and 1Sarah geronimo concert or any other combination on the budget line. C H D Points below the line are also affordable. E But not points above the line. F Number of Concerts per Month
8 Changes in the Budget Line Changes in income Increase in income will shift the budget line upward (and rightward) A decrease in income will shift the budget line downward (and leftward) Shifts are parallel Changes in price In each case, one of the budget line s intercepts will change, as well as its slope When the price of a good changes, the budget line rotates Both its slope and one of its intercepts will change 8
9 Shifting of the Budget Line Number of Movies per Month 30 (a) 1. An increase in income shifts the budget line rightward, with no change in slope Number of Concerts per Month
10 Changes in the Budget Line Number of Movies per Month 30 (b) 2. A decrease in the price of movies rotates the budget line upward Number of Concerts per Month
11 Changes in the Budget Line Number of Movies per Month 30 (c) 3. while a decrease in the price of concerts rotates it rightward Number of Concerts per Month
12 Rationality(Indifference Curve) One common denominator People have preferences We assume that you can look at two alternatives and state either that you prefer one to the other or That you are entirely indifferent between the two you value them equally Another common denominator Preferences are logically consistent, or transitive When a consumer can make choices, and is logically consistent, we say that she has rational preferences Rationality is a matter of how you make your choices, and not what choices you make What matters is that you make logically consistent choices 12
13 More Is Better We generally feel that more is better The model of consumer choice is designed for preferences that satisfy the more is better condition It would have to be modified to take account of exceptions The consumer will always choose a point on the budget line Rather than a point below it 13
14 Theories Theories of consumer decision making Marginal utility Indifference curve Both assume that preferences are rational Both assume that consumer would be better off with more of any good Both theories come to same general conclusions about consumer behavior Our goal is to describe and predict how consumers are likely to behave in markets Rather than describe what actually goes on in their minds 14
15 Marginal Utility Marginal utility of an additional unit Change in utility derived from consuming an additional unit of a good The law of diminishing marginal utility, as defined by Alfred Marshall ( ) states that Marginal utility of a thing to anyone diminishes with every increase in the amount of it he/she already has 15
16 Total And Marginal Utility Utils Utils Total Utility Mogu-Mogu per Week 2. is called the marginal utility of an additional bottle. 1. The change in total utility from one more bottle Marginal utility falls as more bottles are consumed. Marginal Utility Mogu-Mogu per Week
17 Budget Constraint and Preferences (Marginal Utility) If we combine information about preferences (marginal utility values) with information about what is affordable (the budget constraint) Can develop a useful rule to guide us to an individual s utility-maximizing choice Highest possible utility will be point at which marginal utility per PESO is the same for both goods 17
18 Consumer Decision Making Number of Movies per Month MU P concerts concerts 40, MU P movies movies A B MU P concerts concerts C D G 20, MU P concerts concerts MU P movies E F movies 15, 20 MU P movies movies Number of Concerts per Month 18
19 Budget Constraint and Preferences (Marginal Utility) For any two goods x and y, with prices P x and P Y, whenever MU x / P x > MU Y / P Y, a consumer is made better off shifting away from y and toward x When MU Y / P Y > MU X / P X, a consumer is made better off by shifting spending away from x and toward y Leads to an important conclusion A utility-maximizing consumer will choose the point on the budget line where marginal utility per peso is the same for both goods (MU X / P X = MU Y / P Y ) At that point, there is no further gain from reallocating expenditures in either direction 19
20 Budget Constraint and Preferences (Marginal Utility) No matter how many goods there are to choose from, when the consumer is doing as well as possible It must be true that MU X / P X = MU Y / P Y for any pair of goods x and y If this condition is not satisfied, consumer will be better off consuming more of one and less of the other good in the pair 20
21 Consumer Equilibrium Occurs when the consumer has spent all income and the marginal utilities per peso spent on each good purchased are equal. other education entertain. recreation transport. housing food MU A /P A =MU B /P B =MU C /P C = MU Z /P Z A B
22 Changes In Income A rise in income with no change in price leads to a new quantity demanded for each good Whether a particular good is normal (quantity demanded increases) or inferior (quantity demanded decreases) depends on the individual s preferences As represented by the marginal utilities for each good, at each point along the budget line 22
23 Effects of an Increase in Income Number of Movies per Month H'' 2. If his preferences are as given in the table, he'll choose point H 1. When Iego's income rises to Php3000, his budget line shifts outward A B C D E F H H' 3.But different marginal utility numbers could lead him to H' or H'' Number of Concerts per Month 23
24 Changes In Price A drop in the price of concerts rotates the budget line rightward, pivoting around its vertical intercept The consumer will select the combination of movies and concerts on his budget line that makes him as well off as possible Will be combination at which marginal utility per dollar spent on both goods is the same 24
25 Deriving the Demand Curve Number of Movies per Month When the price of concerts is Php300, point D is best for Iego. K D J 2. If the price falls to Php0, Iego's budget line rotates rightward, and he choose point J. Price per Concert And if the price drops to Php50, he chooses D point K. 5 J K 4. The demand curve shows the quantity Iego chooses at each price. 3 7 Number of Concerts per Month 25
26 The Individual s Demand Curve Curve showing quantity of a good or service demanded by a particular individual at each different price In theory, an individual s demand curve could slope upward 26
27 Substitution Effect Substitution effects As the price of a good falls, the consumer substitutes that good in place of other goods whose prices have not changed Substitution effect of a price change arises from a change in the relative price of a good And it always moves quantity demanded in the opposite direction to the price change When price decreases (increases), substitution effect works to increase (decrease) quantity demanded 27
28 Income Effect Income effect As price of a good decreases, the consumer s purchasing power increases, causing a change in quantity demanded for the good Income effect of a price change arises from a change in purchasing power over both goods A drop (rise) in price increases (decreases) purchasing power Income effect can work to either increase or decrease the quantity of a good demanded, depending on whether the good is normal or inferior 28
29 Combining Substitution and Income Effect A change in the price of a good changes Relative price of the good (the substitution effect) and Overall purchasing power of the consumer (the income effect) 29
30 Normal Goods Substitution and income effects work together Causing quantity demanded to move in opposite direction of price Normal goods must always obey law of demand 30
31 Inferior Goods Substitution and income effects of a price change work against each other Substitution effect moves quantity demanded in the opposite direction of the price While income effect moves it in same direction of price But since substitution effect virtually always dominates Consumption of inferior goods will virtually always obey law of demand 31
32 AGAIN, Income and Substitution Effects P Price Decrease: Substitution Effect Q D Ultimate Effect (Almost Always) Purchasing Power Q D Q D if normal if inferior Q D P Price Increase: Substitution Effect Q D Purchasing Power Q D Q D if normal if inferior Q D 32
33 Total utility AGAIN, Utility Total satisfaction from a specific quantity Marginal utility Extra satisfaction from an additional unit Law of diminishing marginal utility Explains downward sloping demand 7-33
34 Marginal Utility (Utils) Total Utility (Utils) AGAIN,Utility Graphically Total Utility (1) Tacos Consumed Per Meal (2) Total Utility, Utils (3) Marginal Utility, Utils TU ] ] ] ] ] ] ] Units Consumed Per Meal Marginal Utility MU Units Consumed Per Meal 7-34
35 AGAIN, Consumer Behavior Key dimensions of the consumer problem Rational behavior Preferences Budget constraint Prices 7-35
36 AGAIN, Theory of Consumer Behavior Find utility maximizing combination of goods Utility maximizing rule Allocate income Last peso spent on each good yields same marginal utility Marginal utility per peso 7-36
37 AGAIN, Numerical Example Combinations of apples and oranges obtainable with an income of Php (1) Unit of Product First Second Third (2) Apple (product A) Price = 1 (a) Marginal Utility, Utils 8 7 (b) Marginal Utility Per Peso (MU/Price) 8 7 (3) Orange (product B) Price = 2 (a) Marginal Utility, Utils (b) Marginal Utility Per Peso (MU/Price) Sixth Check Seventh budget 3 - proceed 3 to next 4 item Compare marginal utilities Fourth Then Fifth compare 5 per peso 5 - MU/Price 12 Choose the highest
38 Numerical Example Combinations of apples and oranges obtainable with an income of Php (1) Unit of Product First Second Third (2) Apple (product A) Price = 1 (a) Marginal Utility, Utils 8 7 (b) Marginal Utility Per Peso (MU/Price) 8 7 (3) Orange (product B) Price = 2 (a) Marginal Utility, Utils (b) Marginal Utility Per Peso (MU/Price) Again, compare per peso - MU/Price Fourth Choose Fifth the highest Buy one of each budget has Php5 left Sixth Proceed Seventh to next 3 item
39 Numerical Example Combinations of apples and oranges obtainable with an income of Php (1) Unit of Product First Second Third Fourth Seventh (2) Apple (product A) Price = 1 (a) Marginal Utility, Utils (b) Marginal Utility Per Peso (MU/Price) (3) Orange (product B) Price = 2 (a) Marginal Utility, Utils (b) Marginal Utility Per Peso (MU/Price) Again, compare per peso - MU/Price Fifth Buy one more orange budget has Php3 left Sixth Proceed to next item
40 Numerical Example Combinations of apples and oranges obtainable with an income of Php (1) Unit of Product First Second Third Fourth Fifth Seventh (2) Apple (product A) Price = 1 (a) Marginal Utility, Utils (b) Marginal Utility Per Peso (MU/Price) (3) Orange (product B) Price = 2 (a) Marginal Utility, Utils Again, Sixth compare 4 per peso 4 - MU/Price 6 Buy one of each budget exhausted (b) Marginal Utility Per Peso (MU/Price)
41 Numerical Example Combinations of apples and oranges obtainable with an income of Php (1) Unit of Product First Second Third Seventh (2) Apple (product A) Price = 1 (a) Marginal Utility, Utils 8 7 (b) Marginal Utility Per Peso (MU/Price) (3) Orange (product B) Price = 2 (a) Marginal Utility, Utils Fourth Fifth Final result at these prices, Sixth purchase 2 apples and 4 oranges (b) Marginal Utility Per Peso (MU/Price)
42 Algebraic Generalization MU of product A price of A 8 Utils Php1 = = MU of product B price of B 16 Utils Php2 Optimum Achieved Money income is allocated so that the last peso spent on each product yields the same extra or marginal utility
43 Consumers in Markets Since market demand curve tells us quantity of a good demanded by all consumers in a market Can derive it by summing individual demand curves of every consumer in that market 43
44 From Individual To Market Demand Price Dan Price Alvir Price Marj c C' + 2 C'' = Number of Mogu-MoguBottles per Week 44
45 From Individual To Market Demand Price 4 3 A B Market Demand Curve 2 C 1 D Number of Mogu-Mogu Bottles per Week 45 E
46 Consumer Theory in Perspective: Extensions of the Model Problems The simple model ignores uncertainty Imperfect information People can spend more than their incomes in any given year by borrowing funds or spending out of savings You might think consumer theory always regards people as relentlessly selfish In fact, when people trade in impersonal markets, this is mostly true People try to allocate their spending among different goods to achieve the greatest possible satisfaction 46
47 Who cares about this? (Beyond Econ Class in Pisay) Companies, like P&G, realize that people have limited budgets. They want to maximize consumer utility with THEIR products. Adjust product qualities to change utility to consumer. Adjust prices Methods Focus groups Test markets Advertising Packaging Reformulations P&G Product Family
48 Limits to Utility Theory Utility theory assumes people are: Rational, self-interested, & consistent. In recent years, many limitations to utility theory in economics have been noted by psychologists and economists. These affect different kinds of transactions differently. Probably have little effect on buying and selling everyday things.
49 Inconsistent behavior? Spite: In experiments, some people have been observed to spend money to reduce the money other people have won In a study, 62% of the participants made themselves worse off in order to make someone else worse off. Compartmentalizing: People often treat money differently depending on the circumstances: Endowment Effect: We value things we are endowed with more than things we don t have Coffee mugs: 15 to sell; to buy.
CONSUMER BEHAVIOR. Total and Marginal Utility
CONSUMER BEHAVIOR Total and Marginal Utility Theory of Consumer Choice Both Budget Constraints and Consumer Preferences can be graphed: The slope of the budget constraint = the rate at which one consumer
More informationMarginal Utility Theory. K. Adjei-Mantey Department of Economics
Marginal Utility Theory K. Adjei-Mantey Department of Economics Kadjei-mantey@ug.edu.gh Utility and Marginal Utility Every economic agent attempts to make the best out of every decision Marginal utility
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 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 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 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 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 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 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 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 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 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 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 informationChapter 02 Economist's View of Behavior
Chapter 02 Economist's View of Behavior Essay Questions 1. It is commonly believed that the best ways to motivate an employee are (1) to improve the quality of the workplace and (2) to make the employee
More informationmyepathshala.com (For Crash Course & Revision)
Chapter 2 Consumer s Equilibrium Who is Consumer A consumer is one who buys goods and services for satisfaction of wants. What is Equilibrium An equilibrium is a point of state or point of rest which every
More information2010 Pearson Education Canada
Consumption Possibilities Household consumption choices are constrained by its income and the prices of the goods and services available. The budget line describes the limits to the household s consumption
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 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 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 informationChapter 6 Household Behavior and Consumer Choice
Chapter 6 Household Behavior and Consumer Choice 1 of 38 Household Choice in Output Markets The Budget Constraint The Budget Constraint More Formally FIGURE 6.1 Budget Constraint and Opportunity Set for
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 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 information제 4 장소비자행동이론. The Theory of Consumer Behavior
제 4 장소비자행동이론 The Theory of Consumer Behavior 소비자행동 Consumer Behavior Consumer Preferences 소비자선호 The goods and services consumers actually consume. Given the choice between 2 bundles of goods a consumer
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 informationTax of $1. Quantity of wine
ECN 104 Notes MARCH 10-14 Elasticities and Taxes When the government puts a tax on the sellers (i.e. manufacturing tax), the tax can be viewed as an increase in the firm s marginal cost. But who is really
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 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 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 informationProblem Set #1. 1) CD s cost $12 each and video rentals are $4 each. (This is a standard budget constraint.)
Problem Set #1 I. Budget Constraints Ming has a budget of $60/month to spend on high-tech at-home entertainment. There are only two goods that he considers: CD s and video rentals. For each of the situations
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 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 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 informationAnswer keys for PS 3
Econ0 nswer kes for S 3. Solution: Income = $50 (CDs) = $5 (CTs) = $5 a. X intercept= I = 50/5 = 0 Y intercept = I = 50/5 = 6 b. Slope= = - 5/5 = - 3/5 Budget constraint in slope- intercept form: = (-3/5)
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 information2013 CH 11 sample questions
Class: Date: 2013 CH 11 sample questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The budget line shows a. the person's lifetime earnings. b. a
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 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 informationECN 2001 MICROECONOMICS I SLUTSKY EQUATION Class Discussion 6 (Ch. 7) - Answer Key TRUE-FALSE
ECN 2001 MICROECONOMICS I SLUTSKY EQUATION Class Discussion 6 (Ch. 7) - Answer Key TRUE-FALSE Two people are flying in a hot air balloon and they realize they are lost. They see a man on the ground, so
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 information11/6/2013. Chapter 17: Consumption. Early empirical successes: Results from early studies. Keynes s conjectures. The Keynesian consumption function
Keynes s conjectures Chapter 7:. 0 < MPC < 2. Average propensity to consume (APC) falls as income rises. (APC = C/ ) 3. Income is the main determinant of consumption. 0 The Keynesian consumption function
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 informationChapter 4 The Theory of Individual Behavior
Managerial Economics & Business Strategy Chapter 4 The Theory of Individual Behavior McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved. Overview I. Consumer Behavior
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 informationJAMB (UTME), WAEC (SSCE, GCE), NECO,
Students ScoreBooster Video Tutorials on JAMB (UTME), WAEC (SSCE, GCE), NECO, and NABTEB EXAMS Economics www.scoreboosterproject.com www.scoreboosterproject.com THEORY OF CONSUMER BEHAVIOUR (I) (JAMB (UTME))
More information2. Explain the notion of the marginal rate of substitution and how it relates to the utilitymaximizing
LEARNING OBJECTIVES 1. Explain utility maximization using the concepts of indifference curves and budget lines. 2. Explain the notion of the marginal rate of substitution and how it relates to the utilitymaximizing
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 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 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 informationAnswer multiple choice questions on the green answer sheet. The remaining questions can be answered in the space provided on this test sheet
Name Student Number Answer multiple choice questions on the green answer sheet. The remaining questions can be answered in the space provided on this test sheet Econ 321 Test 1 Fall 2005 Multiple Choice
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 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 informationProfessor Bee Roberts. Economics 302 Practice Exam. Part I: Multiple Choice (14 questions)
Fall 1999 Economics 302 Practice Exam Professor Bee Roberts Part I: Multiple Choice (14 questions) 1. The law of demand (quantity demanded increases as price decreases) is always fulfilled for a normal
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 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 informationEcon 410, Fall 2007 Lauren Raymer Practice Midterm. Choose the one alternative that best completes the statement or answers the question.
Econ 410, Fall 2007 Lauren Raymer Practice Midterm Name PID Choose the one alternative that best completes the statement or answers the question. 1) Which of the following is a positive statement? 1) A)
More informationHousehold Behavior and Consumer Choice. Asst.. Prof. Dr. Serdar AYAN
Household Behavior and Consumer Choice Asst.. Prof. Dr. Serdar AYAN Household Choice in Output Markets Every household must make three basic decisions: 1. How much of each product, or output, to demand.
More informationTake Home Exam #2 - Answer Key. ECON 500 Summer 2004.
Take Home Exam # - Answer Key. ECO 500 Summer 004. ) While standing in line at your favourite movie theatre, you hear someone behind you say: like popcorn, but m not buying any because it isn t worth the
More informationCPT Section C General Economics Unit 2 Ms. Anita Sharma
CPT Section C General Economics Unit 2 Ms. Anita Sharma Demand for a commodity depends on the utility of that commodity to a consumer. PROBLEM OF CHOICE RESOURCES (Limited) WANTS (Unlimited) Problem
More informationIntroduction to Microeconomics AP/ECON C Test #2 (c)
YORK UNIVERSITY FACULTY OF LIBERAL ARTS AND PROFESSIONAL STUDIES Introduction to Microeconomics AP/ECON 1000.03C Test #2 (c) Course Director: Ida Ferrara November 13 th, 2009 Name Student Number Instructions:
More informationName: Date: Use the following to answer question 3: Figure: Producer Surplus 2
Name: Date: 1. Total surplus is: A) the sum of consumer and producer surplus. B) measured as the area between the supply and demand curves up to the traded quantity. C) the total net gain to consumers
More informationCHAPTER 10 CONSUMPTION AND THE CONSUMER SOCIETY Microeconomics in Context (Goodwin, et al.), 1 st Edition (Study Guide 2008)
CHAPTER 10 CONSUMPTION AND THE CONSUMER SOCIETY Microeconomics in Context (Goodwin, et al.), 1 st Edition (Study Guide 2008) Chapter Summary In this chapter, we explore the traditional microeconomic model
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 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 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 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 information1. [March 6] You have an income of $40 to spend on two commodities. Commodity 1 costs $10 per unit and commodity 2 costs $5 per unit.
Spring 0 0 / IA 350, Intermediate Microeconomics / Problem Set. [March 6] You have an income of $40 to spend on two commodities. Commodity costs $0 per unit and commodity costs $5 per unit. a. Write down
More informationChapter 2 Consumer equilibrium. Part A : Cardinal Utility approach
This chapter is discussed under two parts: Part A : Cardinal Utility approach Part B : dinal Utility or Indifference curve approach Chapter 2 Consumer equilibrium Part A : Cardinal Utility approach Video
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 informationMicroeconomics (for MBA students)
In the Name of God Sharif University of Technology Graduate School of Management and Economics Microeconomics (for MBA students) 44111 (1393-94 1 st term) - Group 2 Dr. S. Farshad Fatemi Consumer Choice
More informationI. Basic Concepts of Input Markets
University of Pacific-Economics 53 Lecture Notes #10 I. Basic Concepts of Input Markets In this lecture we ll look at the behavior of perfectly competitive firms in the input market. Recall that firms
More informationAppendixE. More Advanced Consumer Choice Theory EFFECTS OF CHANGES IN INCOME. Continued from page 526
More Advanced Consumer Choice Theory Appendix Continued from page 526 Income-consumption curve The set of optimal consumption points that would occur if income were increased, relative prices remaining
More informationUniversity of Victoria. Economics 325 Public Economics SOLUTIONS
University of Victoria Economics 325 Public Economics SOLUTIONS Martin Farnham Problem Set #5 Note: Answer each question as clearly and concisely as possible. Use of diagrams, where appropriate, is strongly
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 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 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 informationUniversity of Toronto November 28, ECO 100Y INTRODUCTION TO ECONOMICS Midterm Test # 2
Department of Economics Prof. Gustavo Indart University of Toronto November 28, 2008 SOLUTIONS ECO 100Y INTRODUCTION TO ECONOMICS Midterm Test # 2 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The
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 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 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 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 informationReview for the Second Exam Intermediate Microeconomics Fall 2010
Review for the Second Exam Intermediate Microeconomics Fall 2010 1. Matt recently moved to New York City. To model his behavior, assume he only consumes rental housing (H) and a composite good (X, P X
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 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 informationChapter 4 Read this chapter together with unit four in the study guide. Consumer Choice
Chapter 4 Read this chapter together with unit four in the study guide Consumer Choice Topics 1. Preferences. 2. Utility. 3. Budget Constraint. 4. Constrained Consumer Choice. 5. Behavioral Economics.
More informationChapter 21 The Theory of Consumer Choice
Chapter 21 The Theory of Consumer Choice TRUE/FALSE 1. The theory of consumer choice illustrates that people face tradeoffs, which is one of the Ten Principles of Economics. ANS: T DIF: 1 REF: 21-0 NAT:
More informationSample Midterm 1 Questions. Unless told otherwise, assume throughout that demand curves slope downwards and supply curves slope upwards.
Sample Midterm 1 Questions Unless told otherwise, assume throughout that demand curves slope downwards and supply curves slope upwards. 1. Suppose that you are indifferent between seeing a seeing a move
More informationCV and EV. Measuring Welfare Effects of an Economic Change. ECON 483 ST in Environmental Economics
CV and EV Measuring Welfare Effects of an Economic Change ECON 483 ST in Environmental Economics Kevin Wainwright Welfare and Economic Change Welfare is, in simple terms, the level of well-being of a group.
More informationA Closed Economy One-Period Macroeconomic Model
A Closed Economy One-Period Macroeconomic Model Chapter 5 Topics in Macroeconomics 2 Economics Division University of Southampton February 21, 2008 Chapter 5 1/40 Topics in Macroeconomics Closing the Model
More informationPractice Problem Solutions for Exam 1
p. 1 of 17 ractice roblem olutions for Exam 1 1. Use a supply and demand diagram to analyze each of the following scenarios. Explain briefly. Be sure to show how both the equilibrium price and quantity
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 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 informationAppendix 4.A. A Formal Model of Consumption and Saving Pearson Addison-Wesley. All rights reserved
Appendix 4.A A Formal Model of Consumption and Saving How Much Can the Consumer Afford? The Budget Constraint Current income y; future income y f ; initial wealth a Choice variables: a f = wealth at beginning
More informationSTARRY GOLD ACADEMY , , Page 1
CIS ECONS LEVEL 1 WEEK 2 TOPIC: THEORY OF UTILITY. Definition. Types. Basic concepts of Utility. Approaches to the study of Utility. Law of Diminishing marginal utility. Consumer equilibrium STARRY GOLD
More informationRefer to the figure below to answer the following questions.
This is a sample "test yourself" exam. It is not to be turned in, but will be useful for Office Hour help if you get answers wrong. The answers key is on the last page. It covers Chapters 7, 8, 9, 10 and
More informationTest 1 Econ322 Section 002 Chappell February 16, 2009
Test 1 Econ322 Section 002 Chappell February 16, 2009 Name Last 5 Digits Instructions Fill in your name and last five digits of your student number on this test sheet. Multiple Choice questions must be
More informationECON 314:MACROECONOMICS 2 CONSUMPTION AND CONSUMER EXPENDITURE
ECON 314:MACROECONOMICS 2 CONSUMPTION AND CONSUMER EXPENDITURE CONSUMPTION AND CONSUMER EXPENDITURE Previously, consumption was conjectured to be a function of income, more precisely current income. This
More informationIntroduction to Microeconomics
Introduction to Microeconomics 1 Dr. Matan (matan.tsur@univie.ac.at) Office hours: Firdays 16:30-17:30 or by appointment. Lectures: Thursdays 11:30-13:00 (HS 6) and Fridays 15:00-16:30 (HS 6) Tutorials:
More informationSuggested Solutions to Assignment 3
ECON 1010C Principles of Macroeconomics Instructor: Sharif F. Khan Department of Economics Atkinson College York University Summer 2005 Suggested Solutions to Assignment 3 Part A Multiple-Choice Questions
More informationCONSUMPTION AND THE CONSUMER SOCIETY Microeconomics in Context (Goodwin, et al.), 3 rd Edition
Chapter 8 CONSUMPTION AND THE CONSUMER SOCIETY Microeconomics in Context (Goodwin, et al.), 3 rd Edition Chapter Overview This chapter presents the standard economic model of consumer behavior. We explain
More information