{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

midterm_review - MIDTERM REVIEW ECONOMICS 100A Intermediate...

Info icon This preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
MIDTERM REVIEW ECONOMICS 100A: Intermediate Microeconomics Instructor: Prof. Ryan Oprea Prepared by: Aadil Nakhoda BUDGET CONSTRAINT The budget constraint can be described as the following equation: m = p 1 x 1 + p 2 x 2 m = income p 1 = price of good x 1 p 2 = price of good x 2 Solving the budget constraint: m p 1 = intersect on the x 1 -axis m p 2 = intersect on the x 2 ° axis Slope of the budget line = - p 1 p 2 Some key points to remember: The a/ordable bundle of goods lie on or below the budget line, while the una/ordable bundle of goods lie above it The budget line is a straight line connecting two points on the two axes, but at times there can be a kink in the budget line (food stamps). 1
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
If income changes but prices remain constant, the whole budget line either shifts up or down. If prices change but income remains constant, the slope of the budget line changes. The change in the slope causes the buget line to pivot either to the right or to the left. Solve the following example: Q : Supposing you have an income of $50. x 1 costs $5 and x 2 costs $10. a) Write down your budget constratint The budget constraint is as follows: 5 x 1 + 10 x 2 = 50 b) If you spent all your income on x 1 , how much could you buy? x 1 = 50 5 = 10 c) If you spent all your income on x 2 ; how much could you buy? x 2 = 50 10 = 5 Some exercises to work on: Q 1 : Murphy was consuming 100 units of X and 50 units of Y. The price of X rose from 2 to 3. The price of Y remained at 4. a) How much would Murphy°s income have to rise so that he can still exactly a/ord 100 units of X and 50 units of Y? 2
Image of page 2
Q 2 : Martha is preparing for exams in economics and sociology . She has time to read 40 pages of economics and 30 pages of sociology. In the same amount of time she could read 30 pages of economics and 60 pages of sociology. a) Assuming that the number of pages per hour that she can read does not depend on how she allocates her time, how many pages of sociology could she read if she decided to spend all of her time on sociology and none on economics? b) How many pages of economics could she read if she decided to spend all of her time reading economics? (Hint: The prices here are relative in terms of pages read. Think about the cost of reading 10 pages of economics.) A 1 : $100 A 2 : a) 150 pages, b) 50 pages 3
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
PREFERENCES Some key points to remember: / A n individual will always choose the more preferred option from the set of all available options: Strict preference vs Indi/erence A ± B vs A ² B Two bundles of goods are identically preferred if they lie on the same indi/erence curve. An indi/erence curve shows all the consumption bundles which yield the same utility. An individual strictly prefers a bundle of good above the indi/erence curves to those on or below it. Marginal Rate of Substitution: The rate at which one good is given up for another MRS= Slope of the indi/erence curve = ° ° x 2 ° x 1 In general, MRS is larger at the upper portion of the indi/erence curve than it is at it°s lower portion.
Image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern