Consumer choice and Demand

Consumer choice and Demand - --1 20 2 10 30 30 2 35 1 5 7.5...

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Consumer choice and Demand 15:39  Law of demand is as Price up Qd is down Goal of Consumer : Maximize satisfaction (utility) given budget Income and prices Budget Line Line describing the limits to consumption possibilities 2 goods = hot chocolate + doughnuts Price hot chocolate = 2$/cup Price of doughnut = $1/cup Income = $20 /dollars  a week In these worlds it doesn’t make sense that there is any good in saving money Income = expenditure on HC + Expenditure on doughnuts 20 = 2( Quantity of HC)+ 1(Quantity of doughnuts) we are gonna assume Q of D is on x axis o
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Can graph or you can put in slope intercept form and slove or Qhc Qhc = -.5 Qd+10 The slope of this is the relative price of doughnuts  Slope is always –Px/Py Preferences Q H H C - M U MC/p Dou gh-  U Dou gh- MU
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Unformatted text preview: --1 20 2 10 30 30 2 35 1 5 7.5 50 20 3 49 1 4 7 65 15 4 60 1 1 5.5 75 10 5 70 1 5 80 5 6 79 9 4.5 84 4 7 86 7 3.5 87 3 8 89 3 1.5 89 2 9 91 2 1 90 1 1 92 1 .5 89-1 o Marginal utility is change in Utility/ change in Quantity o Went looking at what is the best way to spend money you have to take into account the same quantities Like if we compare 1 cup of hot choc then equals 2 doughnuts o So we look at Mu/p o Basically we look at the Mc/p for the more expensive good then they are equal and you spend your money where you get more utility. You take one dollar and say if I buy one quantity of a good where do I have the most MU and that is doughnuts first until you buy 3 doughnuts and then buy a cup of Hot choc. o 15:39 15:39...
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This note was uploaded on 05/03/2009 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

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Consumer choice and Demand - --1 20 2 10 30 30 2 35 1 5 7.5...

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