ECON 2000 : Exam 2 Study Guide
Document Summary
Partial-equilibrium analysis examines a single market in isolation and ignores feedback effects from other markets. In general, this is appropriate when the specific market is quite small relative to the entire economy: most of microeconomics uses partial-equilibrium analysis. When economists study all markets together, they use general-equilibrium analysis. Government intervention in competitive markets redistributes surplus between buyers and sellers, but often creates overall losses. So why do it: government policy is often motivated by a desire to help a specific group (e. g. , increase incomes of farmers). Theory of consumer behavior is based on the idea of utility maximization. Utility the satisfaction or well-being that a consumer receives from consuming some good. Total utility the total satisfaction resulting from the consumption of a given commodity. Marginal utility the additional satisfaction obtained by a consumer from consuming one additional unit of a commodity. The law of diminishing marginal utility is the central hypothesis of utility theory.
