ConsumerTheory

ConsumerTheory - ConsumerTheory Chapter to edit Click 8...

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Click to edit Master subtitle style 11 Consumer Theory Chapter 8 & 9
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Course Outline {93B6C7DD-B656-4597-8DAF-0C35C7E5FCD7} Microeconomics troduction is Economics? Markets Work nd and supply tional Topics holds’ Choice Elasticity ncy and Equity t Actions in Markets s and Markets y and Demand references, and Choices onomic Problem put and Costs ct Competition onopoly istic Competition Oligopoly 22
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33 Lecture Outline 1. Budget Constraint—consumption possibilities 2. Preferences 2.1 Utility: total utility, marginal utility 2.2 Indifference curves n Marginal rate of substitution 1. Consumer optimization 3.1 Indifference curves, graphical representation 3.2 Utility theory: meaning and intuition of optimization 1. Predicting consumer behavior 4.1 Price change 4.2 Income change 4.3 Decompose the effects of a price change 1. Application 5.1 Labor-leisure choices
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44 Consumer Theory n A consumer’s choices are determined by n Budgets—consumption possibilities (What are within my reach) q Budget line n Preferences (What do I like) q Utilities q Indifference curve
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55 1. Budget Constraint n Consumption choices are constrained by the household’s income and prices. n These limits are described by its budget line .
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66 1. Consumption Possibilities Divisible and Indivisible Goods Divisible goods can be bought in any quantity desired ex. gasoline Indivisible goods cannot be bought in all quantities ex. movies
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77 Consumption Movies ($8) Soda ($4) possibility (per month) (six-packs per month) A 0 10 B 1 8 C 2 6 D 3 4 E 4 2 F 5 0 1. The Budget Line Lisa’s Income is $40
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1. The budget line
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99 1. The Budget Equation The budget equation is based upon: Expenditure = Income $4Qs + $8Qm = $40 Qs = 10 – 2Qm The quantity of soda can be found by first setting the quantity of movies.
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1010 1. The Budget Line n Slope of the budget is: Price of X - ------------------------ Price of Y
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q A Change in Prices q A rise in the price of the good on the x -axis decreases the affordable quantity of that good and increases the slope of the budget line. q Figure 9.2(a) shows the rotation of a budget line after a change in the relative price of movies. 1. A change in price
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q A Change in Income q An change in money income brings a parallel shift of the budget line. q The slope of the budget line doesn’t change because the relative price doesn’t change. q Figure 9.2(b) shows the effect of a fall in income. 1. A change in income
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2. Preferences Consumption decisions depend upon a person’s likes and dislikes, or preferences . Economists use utilities to measure
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ConsumerTheory - ConsumerTheory Chapter to edit Click 8...

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