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Unformatted text preview: Ch20. Know the definitions marginal and total utility. Know the formula for both and be able to calculate it. Know what the law of diminishing returns is and how its illustrated. Be able to determine consumer optimum between two goods and their respective prices. Be able to apply the cost/benefit formula for consumer optimum: MUa/Pa = MUb/Pb. Know what the income and substitution effects are and how they affect consumer optimum. Ch21. Know the definition elasticity. Know the two ways to measure: mid point :[( Q2-Q1)/(Q2+Q1)] /[( P2-P1)/(P2+P1)]and point slope: (1/slope)*( P/Q). Know how we determine elastic, inelastic and unit elastic. Know these three types of elasticity graphically. Know how elasticity affects total revenue (TR). Raising prices lowers TR when demand is elastic, but raises it if demand is inelastic. Know the determinants of elasticity: time, elastic, but raises it if demand is inelastic....
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