Lecture+12+October+14

Lecture+12+October+14 - Todays agenda Deriving demand...

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Today’s agenda Deriving demand curves from budget lines and indifference curves Income and substitution effects of price changes on Q D Applying consumer theory: Do taxes reduce labor supply?
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The budget equation: representing the consumer’s limited opportunities B M p p p A B A B =− M p B M p A
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Indifference curves: representing the consumer’s preferences B A
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Consumer decision-making: optimization subject to budget constraint B A M/p B M/p A
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At the consumer’s optimal consumption bundle, A. The rate at which the consumer is willing to give up one good in exchange for additional units of the other good exceeds the rate at which she must give up the first good for more of the second while keeping spending constant. B. The opportunity cost of additional units of one good in terms of forgone units of the other good exceeds the rate at which she is willing to give up the first good in exchange for additional units of the second good. C. The rate at which the consumer is willing to give up units of one good for additional units of another good equals the rate at which she must give up the first good for more of the second while keeping spending constant. D. The budget line intersects an indifference curve.
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Deriving demand curves from indifference curves and budget lines Demand curve : the most preferred quantity of
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This note was uploaded on 11/10/2011 for the course ECON 220:102 taught by Professor Rubin during the Fall '11 term at Rutgers.

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Lecture+12+October+14 - Todays agenda Deriving demand...

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