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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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