ECON 50 Chapter Notes - Chapter 9-15: Slut, Isoquant, Boundary Value Problem

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tanmammoth193

22 Nov 2017

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1) let the prices change and alter our income so can just afford old bundle at new prices. 2) then will adjust purchasing power and keep prices constant: creates the (cid:862)pi(cid:448)ot and shift(cid:863) (cid:449)e see below, pivot shows with new budget line, original bundle just affordable when we adjust income at new prices. This income is the original consumption x new prices: so when we find the new amount of income we need to then find the optimal consumption bundle with new prices and adjusted income. Move from x to y in diagram below and is substitution effect. Subtitution effect also called change in compensated demand: see page 141 of pdf for a easy math example. 8. 2: income effect: we now return to the original income that we had before and find optimum with the new prices. Seen above as the shift of the demand curve from y to z.

Related Questions

Hicksian demand can be used to identify the substitution bundle following a price change. For simplification, assume that U = sqrt(Qx.Qy) , income = 100 and Px = Py = $1.

a) Given the information above, what is the optimal level of consumption?

b) What is the level of utility obtained, given this consumption?

c) Now let the price of good X increase to $2. What is the new level of consumption?

d) What is the new level of utility obtained, given this consumption?

e) What is the amount of good X consumed if we wanted to keep utility constant at the original level, but considering the new prices?

f) What is the amount of good Y consumed if we wanted to keep utility constant at the original level, but considering the new prices?

cerisegoldfish626

1) Hicksian demand can be used to identify the substitution bundle following a price change. For simplification, assume that U= sqrt (Qx.Qy), income = 100 and Px = Py = $1

a) Given the information above, what is the optimal level of consumption?

b) What is the level of utility obtained, given this consumption?

c) Now let the price of good X increase to $2. What is the new level of consumption?

d) What is the new level of utility obtained, given this consumption?

e) What is the amount of good X consumed if we wanted to keep utility constant at the original level, but considering the new prices?

f) What is the amount of good Y consumed if we wanted to keep utility constant at the original level, but considering the new prices?

aquamarinemuskrat857

budget line

marginal utility

complete property of preferences

market demand

consumption bundle

substitution effect

Giffen good

total effect

income effect

transitive property of preferences

indifference curves

utility

the marginal rate of substitution

utility function

1.	_____	The satisfaction or benefit that consumers receive from consuming goods or services.
2.	________________ _	A particular combination of specific quantities of goods or services
3.	________________ _	Consumers can rank all conceivable bundles of goods or services
4.	_____	If A is preferred to B, and B is preferred to C, then A is always preferred to C.
5.	_____	Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services.
6.	_____	A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility.
7.	_____	The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed.
8.	_____	The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant.
9.	_____	The line showing all bundles of goods that can be purchased at given prices if the entire income is spent.
10.	_____	The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes.
11.	_____	The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes.
12.	________________ _	The sum of the substitution and income effects.
13.	_____	A good for which quantity demanded varies directly with price, causing an upward sloping demand curve.
14.	_____	A list of prices and the corresponding quantity consumers are willing and able to purchase at each price.

blushwildebeest943

ECON 50 Chapter Notes - Chapter 9-15: Slut, Isoquant, Boundary Value Problem

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