Econ11Fall2007NotesForLecture_9Oct3 - Lecture IX Notes...

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Lecture IX Notes: October 3, 2007; Problem Set 2 Due Quiz from Fall 2006 on Blackboard I. Consumer's Demand Theory II. Exchange Among Primitives – Yezer Does Anthropology III. The Paradox of Value: Diamonds v. Water IV. Consumer's Surplus and Marketing I. Consumer's Demand Theory A. Problem: what produces demand curves? B. Maximizing utility when prices are equal 1. The "equal marginal utility principle" 2. If prices are equal, equate marginal utilities U(Bagles) Total Utility U(Apples) Total Utility MU=0 Apples/week Bagels/week Utility/Apple Utility/Bagel MU=0 MU(B) Equal marginal utility if P A = P B , consume A*,B* A* Apples/week B* Bagels/week D. Maximizing utility when prices are unequal
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1. MU/price = marginal utility of last dollar spent 2. Maximize utility by equating the marginal utility of the last dollar spent on each item consumed 3. Set MU Apples /P Apples = MU Bagels /P Bagels to maximize 4. Or: MU Apples /MU Bagels = P Apples /P Bagels to maximize 5. Marginal rate of Substitution = price ratio
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This note was uploaded on 04/18/2008 for the course ECON 011 taught by Professor Yezer during the Fall '07 term at GWU.

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Econ11Fall2007NotesForLecture_9Oct3 - Lecture IX Notes...

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