Utility and Demand, ch. 7 - Utility and Demand, ch. 7 I....

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Utility and Demand, ch. 7 I. Consumption Possibilities 1. Budget line a. Limits to household’s consumption choices ii. Divisible and Indivisible Goods 1. Divisible goods can be bought in any quantity desired b. Budget Equation 1. Expenditure=Income 2. Expenditure= sum of price of good multiplied by quantity bought ii. Real Income 1. Household’s income expresses as quantity of goods the household can afford to buy iii. Relative Price 1. Price of one good divided by price of another good iv. Change in Prices 1. Lower the price of good measured on horizontal axis, flatter budget line II. Preferences and Utility 1. Utility a. Benefit or satisfaction person gets from consumption of a g/s b. Total Utility 1. Total benefit that person gets from consumption of g/s 2. Depends on level of consumption c. Marginal Utility 1. Change in total utility that results from one-unit increase in quantity of goods consumed d. Diminishing Marginal Utility 1. Decrease n marginal utility as quantity of good consumed increases
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This note was uploaded on 05/06/2009 for the course MGMT 25100 taught by Professor Blanchard during the Spring '09 term at Purdue University-West Lafayette.

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Utility and Demand, ch. 7 - Utility and Demand, ch. 7 I....

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