Principles of Macroeconomics

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University of Wisconsin Department of Economics Economics 101: Principles of Microeconomics Korinna K. Hansen Learning Guide 4 Due Date: Week of Monday, February 26 th , 2007 Reading Assignment: Case & Fair Chapter 6 up to the middle of page 126. Please also prepare the appendix of chapter 6 (up to deriving the demand) and all relevant lecture material. Problem Assignment: Problems 4, 5, and 10 on page 136. Objectives: After completing the assignment you should be able to do the following: 1. Define what an opportunity set and what a budget constraint is. Given changes in income and prices draw the new budget constraint.
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Unformatted text preview: 2. Understand the difference between total and marginal utility. State the law of "diminishing marginal utility". Given different levels in total utility calculate the marginal utility. 3. Define what an indifference curve is and know its properties. 4. Define the marginal rate of substitution and understand its relationship with indifference curves. 5. Given total utility and relative prices for two goods calculate the quantities which will be consumed. (Utility maximization rule). 6. Be able to explain what the utility maximization rule implies in a budget constraint/indifference curve graph....
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