Week 6 Monday and Friday Notes
Week 6 Monday and Friday Notes ECON 2005
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This 0 page Class Notes was uploaded by Glenn Andrew on Tuesday February 23, 2016. The Class Notes belongs to ECON 2005 at Virginia Polytechnic Institute and State University taught by Steve Trost in Spring 2016. Since its upload, it has received 18 views. For similar materials see Principles of Economics in Economcs at Virginia Polytechnic Institute and State University.
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Date Created: 02/23/16
Week 6 Monday and Friday Notes Chapter 6 Day 1 amp 2 Marginal Utility we only get a certain amount of enjoymentutility out of one additional item Chapter 6 Consumer Choice and Demand 1 Utility the level of satisfaction or happiness a consumer derives from the consumption of a good or service the basis of choice for economists a Prof No positive connotations a dryness Can be applied to rent mortgage or ice cream food more general of a term b Economists believe goal of consumers is to maximize utilitv c Sometimes quotsatisfactionquot quotpleasurequot or quothappinessquot replaces 39utility39 d Very hard to measure utility if could though would use 39utils39 though it is not possible to compare utility across people ie Cannot deremine who liked a movie better but can determine what each person likes best I liked x movie better 2 Marginal Utility the additional satisgaction gained by the consumption or use of one more unit of something MUATU a A Q b MU slope of total curve 3 Total Utility the total amount of satisfaction obtained from consumption of a good or service a TUZMU b Markets do not maximize total societal utility 4 Law of Diminishing Marginal Utility LDMU The more you consume of a good the less utility you get out of each additional marginal unit consumed 5 Budoet Constraint the limits imposed on household choices by income wealth and product prices aka budget line a 1 good on each axis line from max able to buyconsume for 1 good to max able to consume of the other good b Depicts combinations of the two goods you can afford called quotopportunity or choice setquot c Slope of the line negative of the ratio of the price of two goods price of x axis price of y axis d As prices change the budget line rotates in or out e lncome changes shift line in our out 6 Real Income set of opportunities to purchase real goods and services available to a household as determined by prices and money income a Rises whenever we ccan afford to buy more stuff b EX Gas prices fall frees up more money to buy other stuff gt Real income doubles c Area increases on graph between two goods 7 Utility Maximization a b The utility maximizing combination of goods will always be on the budgetHne Consumers consume in such a fashion as to ensure that the last dollar spent on a good or service yields the same utiity across all goods e Consumer will set the per dollar marginal utility to be the same across all goods and services best bang for their buck Utilitv Maximisng rule marginal utility price
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