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1-28-09 - Microeconomics Class Notes Do problems(Chapter#2...

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Microeconomics – Class Notes – 1/28/09 Do problems: (Chapter #2 TEXTBOOK) – Due: 1/30/09 # 2, 3, 4, 5, 6, 8, 10, 11, 16, 18, 21, 23, 24, 25, 26, 29, 30, 31, 32, 36. Indifference curves: - Preferences o Cardinal utility – (See the table below) o Ordinal utility – you can rank different bundles from least liked to most liked Assumption of completeness – you can compare any bundle of good and determine which bundle the consumer likes best. Law of diminishing marginal utility Lemons Utility Marginal utility 0 0 (no change) 1 6 6 2 11 5 3 14 3 4 16 2 5 17 1
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Perfect Substitutes – A consumer could exchange one good for another good and still maintain the same level of utility Prices are not factored into account into the indifference curves o You need the budget constraint curve !
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Perfect Complements: These are goods that we consume together in fixed ratios . Left and right shoes have to be consumed together: Consuming “Bad” goods (goods that are bad for you)
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Neutral goods: Satiation points bliss – The optimal bundle You are happier as you move closer to the
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