WHAT of Good X= Px/Py (also known as relative price- the price of one good relative to another)
When WHAT changes, opportunity cost changes
(TU) Total satisfaction from total amount you consume
(MU) Change in Total Utility from consuming an additional unit
Law of Diminishing Marginal Utility
As consumption of a g/s increases, Marginal Utility decreases
Rational consumer will not consume to the point where marginal utility is WHAT?
Max Utility subject to income and prices. Use MU per dollar to determine utility max bundle of g/s. WHAT EQUATION?- gain in utility for each $ we spend. Decreases as consumption increases.
MUx/Px=MUy/Py is WHAT? An affordable combination that gives us the highest possible level of utility.
If MUx/Px WHAT MUy/Py- consumer more X. As you consume more X, MUx will fall and MUy will rise. You continue until the two are equal (consumer equilibrium)
If MUx/Px WHAT MUy/Py- consume more Y. As you consume more Y, MUy will fall and MUx will rise. Continue until the two are equal (consumer equilibrium)
Ex.) MUx/Px= 5 and MUy/Py= 3. Consume more X. Which # is WHAT, that is what you need to consume more of.
Impact on quantity demand due to change in relative price. Will always obey the law of demand. (Increase in P-> Decrease in quantity demanded)
Impact on quantity demanded due to a change in REAL INCOME (purchasing power). Px decreases-> real income increases
If P of a normal good falls, quantity demanded will rise. Real income WHAT?
If P of an inferior good falls, quantity demanded will fall. Real income WHAT?
model of consumer choice won't work
model of consumer choice won't work: 1. Uncertainty 2. Imperfect Info 3. Spending does not equal income 4. Utility depends on others 5. Irrational decisions
height of demand curve
WHAT: how much a consumer is willing to pay/how much someone values each lesson
Difference between what you are willing to pay and what you actually pay for g/s. Everyone pays P* (market price)
Calculate WHAT? 1/2bh ?
Consumer surplus will WHAT if price rises?
Anytime Price decreases, consumer surplus will WHAT?