ECON 101 2Midtermreview

Monopolistic competition is a market structure with

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Unformatted text preview: ngs to note about changes in price!! • A change in the price of one good changes the demand for another good. • You’ve seen that if the price of a movie falls, MUM/PM rises, so before the consumer changes the quantities consumed, MUM/PM > MUP/PP. • To restore consumer equilibrium (maximum total utility) the consumer decreases the quantity of pop consumed to drive up the MUP and restore MUM/PM = MUP/PP. Other Changes A Rise in Income • When income increases, the demand for a normal good increases. • Given the prices of movies and pop, when Lisa’s income increases from $40 a month to $56 a month, she buys more movies and more pop. • Movies and pop are normal goods. The Paradox of Value • The paradox of value “Why is water, which is essential...
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