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exam2review - one another for inferior goods – Giffen...

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Econ 251 Exam #2 Review
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Chapter 7 Utility Marginal utility vs. Total utility Paradox of value Maximize utility given budget Budget line Income = P x Q x + P y Q y Slope = -P x /P y Change in income shifts budget line Change in prices rotates budget line Maximize utility where marginal utilities per dollar are equal MU and price elasticity of demand MU changes slowly demand elastic MU changes quickly demand inelastic
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Chapter 8 Indifference Curves Indifference curve characteristics Negative slope (magnitude of slope = marginal rate of substitution) Diminishing MRS Perfect complements (right angle ICs) and perfect substitutes (linear ICs) Maximize utility given budget where IC is tangent to budget line Also implies MRS = P x /P y Changes in price Substitution effect Income effect Subst. and Inc. effects reinforce one another for normal goods; compete against
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Unformatted text preview: one another for inferior goods – Giffen good • Labor vs. leisure tradeoff – Budget line is income = -w*leisure + (# hours available * w) – Slope = -w – Income and substitution effects always in different directions Chapter 9 Profit, Productivity, and Costs • Production formulas – MP, AP – MP> AP AP rising – MP < AP AP falling – MP crosses AP at maximum of AP • Cost formulas – TC = FC + VC – ATC = AFC + AVC – MC = change in total cost or change in variable cost as output increases • Long run costs – Economies and diseconomies of scale Chapter 10 Perfect Competition • Characteristics • Graphs of MR and costs • Maximize profit where MR = MC • Profit = q x (P – ATC) • Shutdown rule – P < AVC • Long run supply – External economies and diseconomies...
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