{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Final Review

# Final Review - F inal Review M a rginal U tility(148 T he...

This preview shows pages 1–4. Sign up to view the full content.

Final Review Marginal Utility (148): The additional utility, or satisfaction, derived from consuming an additional unit of good. Consumer choice (148-150): A consumer will purchase until the marginal benefit equals the price (MB = P). The shape and steepness of the demand curve depends on a person’s marginal utility. Consumer choice is a constant comparison of value relative to price. Demand curve (152): The market demand is simply the horizontal sum of the individual demand curves of consumers. Law of diminishing (148-149): The basic economic principle that as the consumption of a product increase, the marginal utility derived from consuming more of it (per unit of time) will eventually decline. Price levels (151): The amount of product bought in inversely related to its price. Consumer Equilibrium (150) : The formula implies that the consumer will maximize his/ her satisfaction (or total utility) by ensuring that the last dollar spent on each commodity yields an equal degree of marginal utility. Elasticity of demand (153 - 155) : ( also known as the elasticity coefficient ) Elastic: (substitutes are available) Ford raises SUV prices 10% (while others remain the same) – 30% of buyers switch o When the elasticity coefficient is greater than 1 Inelastic: (no good substitutes) All SUV’s raise their prices 10% - 5% of buyers switch o When the elasticity coefficient is less than 1 Unitary: When the price elasticity is exactly 1

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

View Full Document
Factors that affect price elasticity of demand (156-158): Availability of substitutes (demand is elastic) Product’s share of the consumer’s total budget Time Elasticity and total revenue (158): When demand is inelastic (cigarettes), the change in the price will dominate and, as a result, the price and total expenditures will change in the same direction . When demand is elastic (fast food hamburgers), the change in quantity will be greater than the change in the price, as a result, the impact of the change in quantity will dominate, and therefore the price and expenditures will move in the opposite direction . Income elasticity (160): The percentage change in quantity of a product demanded divided by the percentage change in consumer income that caused the change in quantity demanded. It measures the responsiveness of demand for a good to a consumer’s change in income. Normal goods: A good that has a positive income elasticity, so that, as consumer income rises, demand for the good rises too. Inferior goods : A good that has a negative income elasticity, so that, as consumer income rises, the demand for the good falls. Elasticity of supply (160): The percentage change in quantity supplied, divided by the percentage change in the price that caused the change in quantity supplied. Maximizing consumer satisfaction, give a budget constraint (167) : price change = income effect + substitution effect Types of firms (171 – 172):
Proprietorship: A business firm owned by an individual who possesses the ownership right to the firm’s profits and is personally liable for the firm’s debts.

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}