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ECON 1011, Week 5 Notes

by: Samantha Notetaker

ECON 1011, Week 5 Notes ECON 1011

Samantha Notetaker

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Supply elastics, consumer's demand theory, maximizing utility and consumer surplus.
Principles of Economics I
Yezer, A
Class Notes
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This 1 page Class Notes was uploaded by Samantha Notetaker on Wednesday September 28, 2016. The Class Notes belongs to ECON 1011 at George Washington University taught by Yezer, A in Fall 2016. Since its upload, it has received 3 views. For similar materials see Principles of Economics I in Economics at George Washington University.


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Date Created: 09/28/16
9/26/2016 I. Tuition Subsidies a. Subsidized loans are an indirect form of ad valorem subsidy II. Own Price Elasticity of Supply  a. Own price supple elasticity may be short or long term. It is defined as E  = % change  supply in Q/% change in P along the supply curve.  i. Short term, own price elasticity of supply is less than long run b. For a positively sloped curve, E supply 0 c. Special cases of supply elasticity i. If the supply curve is horizontal, we say supple is perfectly elastic because  E supply∞ ii. If supply curve is vertical, we say that supply is perfectly inelastic because  E supply0 III. Consumer’s Demand Theory a. Why do demand curves slope down? i. Consider the total and marginal utility curves for goods and make some  assumptions: 1. Assume the consumer actually consumes the good: they do not just buy it and resell to someone else 2. Ignore addictive goods 3. There must be a point of ‘satiation’. Eventually, total utility stops  increasing and marginal utility = 0 4. Consumption is flow per unit time b. MU/price = marginal utility of last dollar spent c. Maximize utility by equating the marginal utility of the last dollar spent on each item  consumed IV. Maximizing Utility When Prices are Equal a. Maximizing utility when prices are equal reduces to the equal marginal utility principle.  For each good that is consumed, the marginal utility of the last unit consumed must be  equal. b. If you know the purchases of one good, you can find the purchases of the other good. V. Maximizing Utility When Prices are Unequal a. Maximize utility by equating the marginal utility of the last dollar spent on each item  consumer 9/28/2016 I. Economic Anthropology a. Exchange in markets eliminates diversity b. Goal is to research it once, and sell it forever II. Paradox of Value: price reflects marginal, not total utility III. Consumer’s Surplus and Marketing a. Price reflects marginal benefit of the last unit of the good that is consumed b. Total expenditure = (price) x (quantity purchased), appears as a rectangle c. Total benefit of consumption = area under demand curve, appears as a trapezoid d. Consumer’s surplus = (total benefit) – (expenditure), generally appears as a triangle  under the demand curve and above the price paid


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