ECON 1B03 Lecture 1: ECON 1B03- Week 12 Module 8

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12 Jan 2019

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ECON 1B03 Full Course Notes

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A price change has two effects on consumption. Substitution effect the change in consumption that results when a price change moves the consumer along an indifference curve to a point with a different marginal rate of substitution (still on the same ic). Income effect the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve. If we repeated this exercise for every consumer in the market for basketball tickets (deriving their demand curves) we would have our market demand for basketball tickets. Optional proof of ic slope: when the qty of good x is decreased by dx, the change in total utility is approximately the mu of good x multiplied by dx. D tu = mu(x)dx or dx = dtu / mu(x: the change in good y, dy, must yield a corresponding change in total utility.

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13) The substitution effect is the effect of A) a change in income on the quantity bought when the consumer moves to a higher indifference curve. B) a change in price on the quantity bought when the consumer hypothetically remains on the same indifference curve. C) a change in income on the quantity bought. D) a change in the best affordable point. E) a change in price on the quantity bought when the consumer moves to a higher indifference curve.

28) The substitution effect is the effect of A) a change in income on the quantity bought. B) a change in price on the quantity bought when the consumer moves to a higher indifference curve. C) a change in income on the quantity bought when the consumer moves to a higher indifference curve. D) a change in the best affordable point. E) a change in price on the quantity bought when the consumer hypothetically remains on the same indifference curve.

budget line

marginal utility

complete property of preferences

market demand

consumption bundle

substitution effect

Giffen good

total effect

income effect

transitive property of preferences

indifference curves

utility

the marginal rate of substitution

utility function

1.	_____	The satisfaction or benefit that consumers receive from consuming goods or services.
2.	________________ _	A particular combination of specific quantities of goods or services
3.	________________ _	Consumers can rank all conceivable bundles of goods or services
4.	_____	If A is preferred to B, and B is preferred to C, then A is always preferred to C.
5.	_____	Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services.
6.	_____	A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility.
7.	_____	The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed.
8.	_____	The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant.
9.	_____	The line showing all bundles of goods that can be purchased at given prices if the entire income is spent.
10.	_____	The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes.
11.	_____	The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes.
12.	________________ _	The sum of the substitution and income effects.
13.	_____	A good for which quantity demanded varies directly with price, causing an upward sloping demand curve.
14.	_____	A list of prices and the corresponding quantity consumers are willing and able to purchase at each price.

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ECON 1B03 Lecture 1: ECON 1B03- Week 12 Module 8

ECON 1B03 Full Course Notes

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