MGEA01H3 Lecture Notes - Ordinal Utility, Opportunity Cost, Ceteris Paribus

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ochrefrog126

26 Jun 2012

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UTSC

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Economics for Management Studies

Course

MGEA01H3

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MGEA01H3 Full Course Notes

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Suppose that the consumer (household) consumes only two goods (x and y). Given the prices of the two goods (px, py) and the consumer"s income (m), the possible quantities purchasable by the consumer (xo, yo) are constrained by. Pxxo + pyyo m e. g. , suppose that a student has a budget for coffee and milk of /month. If the price of coffee (x say) is /cup and the price of milk (y) is /litre, the budget constraint is. Note: we can define one of the goods (y say) as a composite commodity, representing all goods other than x. Definition: the maximum combination of two commodities purchasable by a consumer given the prices of the two commodities and the consumer"s money income. Rearranging the budget equation for the assumption that all income is spent gives the budget line. Yo = m/py px/py *x0 e. g. the budget line for coffee and milk with milk as the y commodity is.

Related Questions

Suppose that there are two goods (X and Y). The price of X is $2 per unitu, and the price of Y is $1 per unit. There are two consumers ( A and B). The utility functions for the consumers are: for consumer A: U (X,Y)= X^.5Y^.5 and for consumer B: U(X,Y)=X^.8Y^.2

Consumer A has an income of $100, and Consumer B has an income of $300.

1. Derive the marginal utlities of goods X and Y for consumer A

2. Derive the marginal utilities of goods X and Y for consumer B

3. Set consumer A's MRS equal to the price ratio. Then use the budget constraint to solve for her optimal bundle

4. Set consumer B's MRS equal to the price ratio. Then use the budget contraint to solve for his optimal consumption bundle.

5. Calculate the MRS for each consumer at their optimal consumption bundles.

6. Suppose that there is another conusmer (let's call her C). You don't know anything about her utility function or her income. All you know is that she consumes both goods. What do you know about C's MRS at her optimal consumption bundle? Why?

crimsonbat715

Make sure you give complete definitions and explanations for this set of questions. When dealing with the decrease in income, you will want to talk about the effects on the budget constraint and the consumption bundle of the consumer. Remember, there are only two goods in the model!

What is a budget constraint? How does a budget constraint explain consumer choices when used in conjunction with indifference curves? Explain what happens if a household loses half of their income, using a budget constraint and indifference curves in your discussion.

apricotscorpion920

14. A consumer has $52 per week to spend on commodities A and B. The prices of the commodities, the quantities she now buys and her evaluation of the utility provided by these quantities are as follows Price Units Bought Total Utility Marginal Utility A $1.70 20 500 в $0.50 1000 12 14 Given this information, we can definitely say a. the consumer is currently maximizing utility given her income. b. the consumer could increase her utility by buying more of A and more of B without exceeding her budget. c. to maximize utility, the consumer must buy less of A and more of B. d. the consumer's utility will be maximized when MUB/MUA = 17/4. e. both a and d.

MGEA01H3 Lecture Notes - Ordinal Utility, Opportunity Cost, Ceteris Paribus

MGEA01H3 Full Course Notes

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