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Introduction to MacroEconomics Chapter 10

by: Caroline Jok

Introduction to MacroEconomics Chapter 10 ECON 1011

Marketplace > George Washington University > Economcs > ECON 1011 > Introduction to MacroEconomics Chapter 10
Caroline Jok
GPA 3.8
Principles of Economics I
Foster, I

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About this Document

Professor Foster Chapter 10.1-10.2 Introduction to Macroeconomics Consumer Choice and Behavioral Ethics Hubbard and O'Brien
Principles of Economics I
Foster, I
Class Notes
gwu, Macroeconomics, chapter 10, Foster, Hubbard and O'Brien, Consumer Choice and Behavioral Ethics, Economics
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This 2 page Class Notes was uploaded by Caroline Jok on Saturday October 24, 2015. The Class Notes belongs to ECON 1011 at George Washington University taught by Foster, I in Fall 2015. Since its upload, it has received 24 views. For similar materials see Principles of Economics I in Economcs at George Washington University.


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Date Created: 10/24/15
Professor Foster Econ 1011 Hubbard and O Brien Macroeconomics Foundations and Models Chapter 101102 Notes Consumer Choice and Behavioral Economics 101 Utility and Consumer Decision Making I law of demand price of a good falls quantity demand increases I The Economic Model of Consumer Behavior in a Nutshell 0 Consumers will choose to buy the combinations of goodservices that makes them as well off as possible from among all the combinations that their budget allows them to buy I Utility 0 The enjoyment or satisfaction people receive from consuming goods and services 0 Unit util 0 Can t be compared across people I The principle of diminishing Marginal Utility 0 Marginal Utility change in total utility a person receives from consuming one additional unit of a good or service 0 As you increase consumption total utility increases 0 Law of diminishing marginal utility diminishing additional satisfaction as they consume more of a good or service during a given period of time I The Rule of Equal marginal Utility per Dollar Spent Budget Constraint limited amount of income Optimal decisions are made at the margin Rule of equal marginal utility per dollar spent Two conditions I Marginal Utility per dollars 39 Use all of your budget I The income Effect and Substitution Effect of a Price Change 0000 0 Income effect The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power holding all other factors constant I If the product is a normal good consumer increases the quantity demanded as income increases I Inferior good income rises and quantity demand decreases O Substitution Effect I The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods holding constant the effect of the price change on consumer purchasing power 0 Fall in price of pizza causes you to eat more pizza and drink less coke 102 Where Demand Curves come From I law of demand whenever the price falls quantity demand increases I If the good is an inferior good gt income effect leads consumers to decrease the quantity of the good they demand I The substitution effect results in consumers increasing the quantity of good they demand when their price falls If the good is inferior the income effect leads consumers to decrease the quantity of the good they demand I When the price of an inferior good falls income effect and substitution effect work in opposite directions I Are there any upward sloping demand curves in the real world 0 Good would have to be inferior and the income effect larger than the substitution effect 0 Giffen Good


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