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by: Brie Burnett

Ch.8 Econ 2020

Brie Burnett

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Exam 2
Principles of Economics: Microeconomics
Class Notes
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This 1 page Class Notes was uploaded by Brie Burnett on Tuesday September 27, 2016. The Class Notes belongs to Econ 2020 at Auburn University taught by Banerjee in Fall 2016. Since its upload, it has received 8 views.


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Date Created: 09/27/16
9/27/16 Ch. 8: Utility ­Utility=Satisfaction, happiness  Benefit obtained from consuming a good (not monetary value) ­Goal of Consumer  Maximize utility given our income   Def. Budget Line: boundary between the consumption possibilities that are  affordable and those that are not given the goods’ prices and consumer’s income   Budget  2 goods (hot chocolate and donuts)  Income= 1  QH= quantity of hot chocolate  QD= quantity of donuts  PH= price of hot chocolate  PD= price of a donut   I>PH*QH+PD*QD PH & QH= Expenditure on H PD & QD= Expenditure on D I= PH*QH+PD*QD o Ex) 20=2*QH+1*QD= budget line equation (QH, QD) Put QD=0 so QH is y­intercept & then put QH=0 so QD is y­intercept QH= (0,10) & QD= (20,0) o Slope of budget line: Change in QHx/Change in QDy= ­PDx/PHy o Y=mx+c  m=slope, c=y­intercept  20=2QH+QD ­2QH=­20+QD QH=10, QD=10 QH=­1/2QD+10 slope=­1/2=­PD/PH, y­int=10 o When price changes, slope changes o When income changes, slope remains constant   Preference and Utility ­Total Utility (TU)= total benefit a person gets from the consumption of goods ex) total satisfaction from cups of coffee ­Marginal Utility (MU)= the change in total utility that results from a unit  increase in the quantity of a good consumed ex) satisfaction from an extra cup of coffee ­Diminishing Marginal Utility Principle: As the quantity of the good consumed  increases, the marginal utility decreases


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