11 Consumer Choice

# 11 Consumer Choice - Consumer Choice (Part 2) 2/17/11 11:59...

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Consumer Choice (Part 2) 2/17/11 11:59 PM Example: Student’s Entertainment Budget= \$100/ month Graphs and data on powerpoint Greatest utility combination = (3C+4M)=4100 All calculations of utility with all combinations is the long way All you have to do is to find the marginal utility per dollar that are the same for both products that uses all the budget = equal marginal utility per dollar rule Utility Maximization Utility maximum occurs when marginal benefit per dollar are equal What happens if income changes (with no change in prices)? The budget line shifts to the right if income/budget increases Shifts to the left if income/budget decreases What will happen to the optimal purchase? In example, when budget doubles, the best combination are double of what it was before o If the good is normal, quantity demanded will increase o If one good is inferior good, the quantity demanded of the inferior good will decrease, and that of the normal good win

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## This note was uploaded on 02/17/2011 for the course ECON 011 taught by Professor Yezer during the Fall '07 term at GWU.

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11 Consumer Choice - Consumer Choice (Part 2) 2/17/11 11:59...

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