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ECON 323 - Exam 1 / notes
Terms in this set (33)
a "schedule" relating price and quantity demanded
what are some determinants of demand?
- taste and preferences
- prices of other goods (substitutions and complements)
- income (normal/inferior)
- size of the market
- government policies
what is the law of demand?
inverse relationship between price and quantity that consumers are willing and able to purchase all other things held constant
why is the demand curve downward sloping?
income and substitution effects
what makes a consumer willing?
taste and preferences
what makes a consumer able?
income and price
how is the demand curve viewed horizontally?
for any price gives the max quantity consumers are willing and able to buy
how is the demand curve viewed vertically?
for any given quantity, shows max price consumers are willing and able to pay
what is supply?
- prices of inputs/factors of production
- size of market, number of sellers
For an individual who consumes only two goods, X and Y, the opportunity cost of consuming one unit of X in terms of how much Y must be given up is reflected in
the slope of an individual's budget constraint
If bundle A lies on an indifference curve and bundle B lies to the right of the curve, the individual
prefers bundle B to bundle A
Suppose an individual's MRS (of steak for beer) is 2:1. That is, at the current consumption choices he or she is wiling to give up 2 beers to get an extra steak. Suppose also that the price of a steak is $1 and beer is $0.25. Then in order to increase utility the individual should-?
buy more beer and less steak
If an individual's indifference curve map does not obey the assumption of diminishing MRS, then
tangence's of indifference curves to the budget constraint may not be points of utility maximization
"height" of the demand curve
- measures the marginal benefits of the last unit
- willingness to pay
"height" of the supply curve
- the reservation price: minimum acceptable price
- opportunity cost of the last unit
set quantity demanded = 0
with an elastic demand, which direction do the price and total spending curves move?
with an inelastic demand, which direction do the price and total spending curves move?
what happens when there is an income increase?
budget set expands; "parallel shifting"
what happens when Px increases?
budget set contracts
what happens when Py decreases?
budget set expands
what does R mean?
at least as good as
what does I mean?
what does P mean?
dissect - "how much Y are you willing to give up for an additional unit of X?
marginal benefit of an additional unit of X
dissect - "how must Y you must give up for an additional unit of X? - market given opportunity cost of X in terms of Y
marginal cost of an additional unit of X
MB > MC
economic incentive to purchase additional X
) = Px/Py
binding budget constraint
is utility a ordinal or cardinal measure of wellbeing?
an increase in the price of one goods leads to a decrease in the quantity demanded of the other
an increase in the price of one good leads to an increase in the quantity demanded of the other
THIS SET IS OFTEN IN FOLDERS WITH...
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