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ECON 2020 Exam 3, Lecture 1

by: Crystal Boutwell

ECON 2020 Exam 3, Lecture 1 ECON 2020 - 4

Marketplace > Auburn University > Economcs > ECON 2020 - 4 > ECON 2020 Exam 3 Lecture 1
Crystal Boutwell
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About this Document

These notes start the conversation about Consumer Behavior. The notes are from 2/24 since we had the exam Monday and class cancelled Friday.
Principles of Microeconomics
William Macy Finck
Class Notes
Econ, Microeconomics, consumers, Consumer Behavior, producers, Graphs, Economics, auburn
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This 1 page Class Notes was uploaded by Crystal Boutwell on Friday February 26, 2016. The Class Notes belongs to ECON 2020 - 4 at Auburn University taught by William Macy Finck in Fall 2015. Since its upload, it has received 104 views. For similar materials see Principles of Microeconomics in Economcs at Auburn University.


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Date Created: 02/26/16
Vocabulary Equations C ONSUMER B EHAVIOR Laws/Trends/Important Why do we buy things? To maximize utility lists  Utility: the satisfaction a consumer obtains from the consumption of a good or service.  Measured in utils  We cannot compare the utils assigned to a good by multiple people.  We can compare the utils assigned to multiple goods by one person. T OTAL VS . M ARIGINAL U TILITY  Total Utility: the total satisfaction a person derives from consuming some specific quantity;  TU increases as Qd increases  TU = ΣMU  Marginal Utility: the additional utility a consumer derives from an additional unit of a good. QUANTITY 1 2 3 4 5 6 TU 15 28 39 48 55 60 MU 15 13 11 9 7 5  MU=ΔTU  Law of diminishing MU: As Qd rises, MU falls. NOTE: as MU falls, willingness to pay falls as well. When do we stop buying stuff? When we run out of money. (Assuming no saving/borrowing)  Budget line/constraint: line that shows the difference in consumption bundles a consumer can purchase with a specific money income.  Consumption bundle: the combination of 2 goods and services consumed by an individual.  Same principles of PPF apply; if a point is under the line, it is inefficient; On the line=maximized efficient, above the line=unattainable.  NOTE: the price of a consumption bundle cannot exceed the consumer’s total income. They are spending all of their money.  Income = (Qx * Px) + (Qy * Py)  Budget line constraints are always straight lines  Example:  Assume a consumer with $24 to spend is choosing between $4 hot dogs and $2 chicken fingers. HD *The consumer can purchase all bundles on or to the left of the budget line. OPP COST of x: max Qy/max Qx OR Px/Py 6 ***Pay attention to which variable is on top for which equation. Opp cost of Hd= 2CF; Opp Cost of CF; ½ HD 12 CF


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