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Exam 3 Lec 1

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by: Karlee Castleberry

Exam 3 Lec 1 Econ 2020

Karlee Castleberry
GPA 3.1

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These notes cover Dr. Finck's first lecture for exam 3! If you missed this class, make sure you get these since he said the two most important economic principles for exam 3 were included!
Principles of Economics: Microeconomics
William M. Finck
Class Notes
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Becky Falgoust

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This 3 page Class Notes was uploaded by Karlee Castleberry on Wednesday February 24, 2016. The Class Notes belongs to Econ 2020 at Auburn University taught by William M. Finck in Spring 2016. Since its upload, it has received 50 views. For similar materials see Principles of Economics: Microeconomics in Business at Auburn University.


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Date Created: 02/24/16
Econ 2020 Exam 3 Lect. 1 [definition formula relationships between variables] {Lecture 1}  Ch 7 – consumer behavior o Question 1: Why do we buy stuff?  To maximize utility  Utility- the satisfaction a consumer gets from the consumption of a good of service  Utility facts:  Utility is measured in utils  We can’t compare the utils assigned to a good by multiple people  We can compare the utils assigned to multiple goods by one person o Total vs. marginal utility  Total utility- the total satisfaction a person derives from consuming some specific quantity; TU increases as Qd increases; TU = ∑ MU  Marginal utility- the additional utility a consumer derives from an additional unit of a good (∆ TU) Quantit 1 2 3 4 5 6 y TU 15 28 39 48 55 60 MU 15 13 11 9 7 5  Law of diminishing MU- as Qd rises, MU falls  NOTE: as MU falls, willingness to pay falls too o Question 2: When do we stop buying stuff?  When we run out of money  Budget line/constraint- line that shows the different consumption bundles a consumer can purchase with a specific money income  Consumption bundle- the combo of goods & services consumed by an individual  NOTE: the price of a consumption bundle cannot exceed the consumer’s total income  Income= (Qx * Px) + (Qy * Py)  Assume a consumer with $24 to spend is choosing between $4 hot dogs and $2 chicken fingers  Hot Dogs 6 A 12 Fingers  If the consumer is at a bundle non the budget line, the only way to consume more of one good is to give up some of the other o Opp cost of X = max Qy / Max Qx = Px / Py  Opp cost of a hot dog = 2 C  Opp cost of C = ½ hot dog 2  Factors that change the budget line o 1. Income – a change in income causes a shift of the budget line o o 2. Price of Y – a change in price causes a rotation of the budget line o 3


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