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Notes for week 6

by: aswanson488

Notes for week 6 Econ 215

Coe College
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About this Document

Notes from the past week of class
Class Notes
indifference curves, Preferences, Priceelasticityofdemand, Incomeelasticitydemand, crosspricelasticity, consumerchoice




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This 2 page Class Notes was uploaded by aswanson488 on Sunday October 9, 2016. The Class Notes belongs to Econ 215 at Coe College taught by Ryan in Fall 2016. Since its upload, it has received 2 views. For similar materials see Microeconomics in Principles of Microeconomics at Coe College.

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Date Created: 10/09/16
Microeconomics notes for the week of October 3 10/3 Price elasticity of demand equation- change in quantity divided by the change in price times the mean of price divided by the mean of quantity If demand is elastic and price increases, the total revenue (TR) will be lower If demand is inelastic and price decreases, the total revenue will be higher TR is calculated by multiplying the quantity of goods sold by the price of the goods Income Elasticity An informal definition- how responsive quantity demanded is to the change in income Income elasticity equation- change in quantity demanded divided by the mean of quantity all over the change in price divided by the mean of price If the sum of the number is greater than zero, slope is positive and it’s a normal good If the sum of the number is less than one and greater than zero, the good is a necessity, because consumers will consume the good no matter the price If the sum is greater than one, the good is a luxury If the sum is equal to zero, it is an inferior good Cross Price Elasticity How quantity demanded responds to a change of related goods Cross price equation- change in quantity demanded divided by mean of quantity all over the change in price divided by the mean of price OR the percent change in quantity demanded divided by the percent change of price If the number is greater than zero, the goods are compliments If the number is less than zero, the goods are supplements 10/5 Consumer Choice: Multiple Goods Budget constraints- represent all combinations of goods a consumer can purchase given prices and income If you graph the two goods, one on the x-axis and one on the y-axis, everything on or below the line is feasible The graph is downward sloping because of limited resources and limited budgets The slope of the line is the opportunity cost of the goods- what the market allows consumers to trade one good for one unit of the other good Shifters of the graph: If the budget increases, the line will shift up, or out If price of one of the goods increases, the slope will change and the line will be steeper Indifference curves Indifference curves show preferences over different bundles of goods How a consumer ranks different bundles of similar goods Indifference curves show all combinations of a good that are equally desirable to the consumer that make the consumer indifferent given the same level of satisfaction THE INDIFFERENCE CURVES CANNOT EVER INTERSECT Properties of the indifference curve:  A higher curve is better  Almost always downward sloping  Never intersect  Bowed in due to the law of diminishing marginal utility


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