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Micro Economics

by: Shafina Khaki

Micro Economics

Marketplace > University of Washington > 200 > Micro Economics
Shafina Khaki

Professor Haideh

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About this Document

Here is a study guide review for chapters 1 and 2. (:
Professor Haideh
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This 3 page Bundle was uploaded by Shafina Khaki on Saturday April 26, 2014. The Bundle belongs to a course at University of Washington taught by a professor in Fall. Since its upload, it has received 94 views.


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Date Created: 04/26/14
Micro Economics Summarized Notes Chapter 1 and 2 Study Guide Shafina Khaki Chapter 1 Prices provide information and incentives to produce the goods consumers want Scientific Statements must be judgment free Positive statements not Normative Statement Positive statements are either true or false and not opinionated Scarcity forces us to compete with other consumers It forces us to allocate resources which have alternative uses Vocabulary 0 Cost The cost of any action is the highest valued thing that doesn39t occur because that action was taken 0 Demand Analysis of how consumers choose 0 Supply How individuals choose goods to produce 0 Marginal Value What a consumer is willing and able to give up for a certain goodservice 0 Consumer Surplus Total Value Total Expenditure o Opportunity Cost Value of the best alternate forgone o Tastes Also called preferences Chapter 2 Law of Demand Follows diminishing marginal values other things remain the same like income but as prices of a good decreases more of that good is consumed Same for as the prices increase less is consumed Demand Curves all consumers in a market Sum of each individuals demand curve 0 Indicates the amount a consumer wishes to purchase at a given price 0 Negatively sloped Market Demands are sloping for two reasons 0 Price of good decreases consumer increases consumption 0 New consumers enter market and add to the demand of that particular goodservice Total Value of Goods what we would be willing to pay Total Expenditure What we actually do pay Consumer Surplus gains from exchange Diamond Water Paradox Why are diamonds more expensive while water a good necessary for survival less 0 Prices of these goods represent marginal values not total values 0 Water we have a lot of so marginal value is low because we have so much Total value of water is high since large amount of consumer surplus 0 Consumer surplus for diamonds are small because quantity is small and price is high Example Problems Chapter 1 and 2 1 Mary could sell the untouched tuna spaghetti to her friend for 1 The opportunity cost of throwing away the tuna spaghetti is still 2 True or false Answer False Opportunity cost is about making a choice in the present If she throws away the tuna spaghetti she forgoes the 1 she would have received for it The opportunity cost here is 1 which is what she can get for it now not 2 which is what she already spent 2 A typical resident of the city of Salmon Bay has the following marginal value schedule for electricity produced in the nearby Salmon Bay dam Q 1 2 3 4 5 6 7 8 MV 7S 6S 5S 4S 3S ZS 1S OS The price of electricity is 3 per unit The marginal value schedule of a typical consumer for samon caught in the nearby Salmon Bay river is I Q I1 I2 I3 I4 I5 I6 I7 I8 MV 12 10 es es 4s 25 05 0s The price of Salmon is 6 per unit The Salmon Bay city government intends to allow more water to pass through the Salmon Bay dam so as to allow more salmon to reproduce This policy will raise the price of electricity to 5 per unit and reduce the price of salmon to 4 per unit Are the residents of the Salmon Bay city better off with this new policy Write down the condition for a consumer39s choice of quantity of a good or service purchased and show your work Answer Consumers purchase a quantity of a goodservice for which P MV At p 3 per unit of electricity 5 units are purchased per period Q5 TV76543 25 TE15 and CSS10 At a price of 6 per unit of salmon 4 units are purchased per period TV 121086 S 36 TE 24 CS 12 The Consumer Surplus for both salmon consumption and electricity consumption are S1012 22 Under new policy the price of electricity will be 5 per unit In this case 3 units will be consumed per pe od TV 765 18 TE S3S5 15 CS 3 The new price for salmon is 4 per unit Therefore Q 5 units per period TV 1210864 S 40 TE 20 CS 20 The total CS for both electricity and salmon under the new policy is 23 A typical resident of the Salmon Bay city is better off under the new policy The net increase in Consumer Surplus is 2322 1 3 Panel a Consumer E surplus 1 lt1 B G 2 5 Total consumer expenditure Demand 0 E Quantity per period


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