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ECON 2306, Note 1 for Test 2

by: Asiah Notetaker

ECON 2306, Note 1 for Test 2 ECON 2306 - 002

Asiah Notetaker
GPA 4.0

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About this Document

From the lectures after Test 1
Professor Wehr
Class Notes
Economics, Microeconomics
25 ?




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This 2 page Class Notes was uploaded by Asiah Notetaker on Wednesday February 24, 2016. The Class Notes belongs to ECON 2306 - 002 at University of Texas at Arlington taught by Professor Wehr in Spring 2016. Since its upload, it has received 54 views. For similar materials see Microeconomics in Economcs at University of Texas at Arlington.


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Date Created: 02/24/16
Consumer Behavior and Utility (Satisfaction measured in “Utils”) ∆???????? ???????????????????????????????? ???????????????????????????? =∆????  The Consumer Problem  The Value of a Product o Notable People  Adam Smith  Karl Marx  William Stanley Jevons “Marginalism”  Alfred Marshall “Marginalism”  Dan Ariely  Water–Diamond Paradox o Why is the necessity really cheap but the luxury really pricey?  Utility and Indifference Curves – Law of Diminishing Marginal Utility o Q PizzaTotal UtilityMarginal Utility o 0 0  --- o 1 300  300  o 2 575  275  o 3 775  200  o 4 850  75  MRSxy MUx/MUy o 5 900  50  o 6 925  25  Slope of isoutility curve Marginal rate of substitution of Good x o 7 927  2  o 8 800  -127  for Good y Indifference/Isoutility CurveGraph is bowed inward because if you have too much of one, you’re willing to give up more quantity of that QPIZZA BLISS POINT!! to get more of the other and still have the same satisfaction Multiple isoutility curves cannot cross (if not, it’ll be intransitive) QROOT BEER Higher curves give more satisfaction  Budget Constraints Budget Constraint (cannot pass) = slope = Px/Py 10 Assume: I = $1000 Q = (I/Py) Py = $10 100 Px = $1 Qx = (I/Px) Slope = 1/10  Budget Constraint with Isoutility Points A, B, C, D, E are all on the budget constraint curve so they A are all attainable. B The number of isoutility curves is infinite, but suppose these three C are the only ones that intersect with the budget constraint curve The best point to choose from is point C because it is the furthest D E isoutility curve therefore you are most satisfied with this combination; it is a point of tangency where the slopes of both curves are equal (where MUx/MUy = Px/Py) This can be used to create a demand curve (as shown below) I = $100 P Q 100 ROOT BEER ROOT BEER PPIZZA $1 (constant) $2 50 $1 100 PIZZA $0.50 200 Q *Notice how as price decreases, quantity demanded increases 50 100 200 PROOT BEER$2 $1 $0.50 QROOT BEERat various prices)  Consumer Equilibrium  Deriving a Demand Curve Using Points of Consumer Equilibrium 


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