MGEB01H3 Chapter Notes - Chapter 4: Composite Good, Engel Curve, Demand Curve

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bluebeetle275

20 Mar 2016

School

UTSC

Department

Economics for Management Studies

Course

MGEB01H3

Professor

Ingrid L.Stefanovic

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Document Summary

The market demand curve is a relaionship that tells us how much of a good the market as a whole wants to purchase at various prices. The individual demand curve is a relaionship that tells us how much the consumer wants to purchase at diferent prices: uses the pcc to construct the individual demand curve, important features: Moving a graph in which both axes measure quaniies to one in which the price of shelter is ploted against the quanity of shelter. Demand curve is constructed holding money income, m, and price of composite good, py, constant. If either changes, individual"s pcc and demand curve shits. If we know py, the price of composite commodity, then we can calculate (from diagram) what the consumer"s money income must be since the verical intercept equals m/py. An engel curve is a curve that plots the relaionship between the quanity of a good consumed and income.

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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.

blushwildebeest943

1. Economists use indifference curves to characterize the preferences of a rational consumer. There are some plausible assumptions that lead to a set of âwell-behavedâ (i.e., downward-sloping and strictly convex) indifference curves. Which one of the following is NOT among the assumptions?

a. All goods must be economic âgoods.â

b. Preferences are complete.

c. Preferences are transitive.

d. All goods are normal goods

2. Given the prices of good X and Y, the (negative of the) slope of the budget constraint (i.e., - PX/PY) measures

a. the amount of good Y the consumer is willing to forgo in order to consume one more unit of good X.

b. the ratio of the consumer's income to the price of the X good.

c. the quantity of the Y good that must be forgone in order to purchase one more unit of the X good.

d. the quantity of the X good that must be forgone in order to purchase one more unit of the Y good.

3. Which of the following statements is incorrect for an inferior good?

a. An inferior good may have an upward-sloping demand curve.

b. The income elasticity of demand for an inferior good is negative.

c. An inferior good is an economic âbad.â

d. All of the above.

We have the follwing equations:

Demand Curve: Q^x_d= -1,450 - 25P_x + 12.5P_y + .2Inc

Supply Curve: Q^x_s = -100 + 75P_x - 25P_y - 12.5P_z + 10R

Where: P_x = Price of Good X

Q = Quantity

Inc = Income

R = Rainfall

P_y = Price of Product Y

P_z = Price of Product Z

a) Suppose the prices of goods Y and Z are $5 and $8 respectively and Inc = 8,000 and R = 20. Calculate the equilibrium price and quantity.

b) Is the product a normal or inferior good? Explain. -you do not have the indifference curves here, so must use another technique that gives you the normality or inferiority of the good.

c) Discuss the relationship of products Y and Z to our good.

d) Comment on whether a surplus or shortage exists when Px = $1.25

ceruleanmallard269

MGEB01H3 Chapter Notes - Chapter 4: Composite Good, Engel Curve, Demand Curve

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