[EC270] - Final Exam Guide - Comprehensive Notes for the exam (31 pages long!)

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cyanfish941

29 Nov 2016

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Ec 270 chapter 4: utility maximization and choice. Remember: economic theory of the consumer: assume that consumers choose the best bundle of goods they can afford. Consumption choice set: the collection of all consumption choices available to the consumer. Assume there are n different consumptions of good xi to choose from: Co(cid:374)su(cid:373)ptio(cid:374) (cid:271)u(cid:374)dle = x = (cid:894)x(cid:1005), x(cid:1006), , x(cid:374)(cid:895) The (cid:272)o(cid:374)su(cid:373)er(cid:859)s (cid:271)udget, ti(cid:373)e, a(cid:374)d other resource limitations constrain the consumption choices. Each commodity (xi) has a price (pi) Budget constraint: formed by the consumption bundles that are only just affordable (exhaust all income) Budget set: the set of all afforda(cid:271)le (cid:272)o(cid:374)su(cid:373)ptio(cid:374) (cid:271)u(cid:374)dles (cid:894)do(cid:374)(cid:859)t ha(cid:448)e to e(cid:454)haust i(cid:374)(cid:272)o(cid:373)e (cid:271)ut (cid:272)a(cid:374)(cid:859)t e(cid:454)(cid:272)eed i(cid:374)(cid:272)o(cid:373)e(cid:895) Budget constraints are the upper boundary of the budget set. Composite good (y) represents everything else the consumer may want to consume other than x. Convenient to think of y as being dollars spent on other goods. The budget constraint will look like: pxx + y

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

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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[EC270] - Final Exam Guide - Comprehensive Notes for the exam (31 pages long!)

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