Learning Guide5

Principles of Macroeconomics

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University of Wisconsin Department of Economics Economics 101: Principles of Microeconomics Korinna K. Hansen Learning Guide 5 Due Date: Week of Monday, March 5, 2007 Reading Assignment: Case & Fair Chapter 6 (the whole chapter including the appendix) and all relevant lecture material. Problem Assignment: Problems 7, 8, and 9 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. 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
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Unformatted text preview: 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. 7. Derive the demand curve given income, prices for two goods and the consumers preference for these goods. 8. Derive the Engel curve given income, prices for two goods and the consumers preference for these goods. 9. Define the price, substitution and income effects after a price change. 10. Show the price, income and substitution effect on a graph after a price change for a normal good. 11. Show the price, income and substitution effect on a graph after a price change for an inferior good....
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