ECON 1050 Lecture Notes - Lecture 4: Rationality, Equalize, Substitute Good

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viridiangoldfish809

10 Nov 2018

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Consumption ossiblities are all the things that you can afford to buy. You can afford many different combinations of goods and services, but they are all limited by your income and by thr prices that you must pay. Consumption possibilities are limited by income and price. The budget line constraints choices, consumers can afford all choices on or below their budget line, the choices above their budget line are unaffordable. Consumption possibilities change when income or prices change. A change in income shifts the budget line but maintains the same slope. A change in price changes the slope of the budget line. Income and prices limit consumption choices, but consumers still have a lot of choice based on their preferences. We use consumer preferences to determine hoe consumers make their buying plans, we want to explain what determines demand and marginal benefit.

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The U.S. government currently spend $475,909,674,990.00 a year on the Medicaid program. There are 82 Million households that receive Medicaid. Providing low income Americans with free health insurance is intended to improve their economic well-being. We can understand this better by showing improvements in a typical low-income family's budget possibilities. Please illustrate with a well-labeled budget constraint graph how the consumption possibilities of health insurance (HI) and all else (Y) expand for a family when Medicaid is introduced, through parts a) above d) below. As we have done in class, Assume that P(Y)=$1; P(HI)=$1 and family income is $20,000 a year. (b) Using the amount from (a), show how the budget constraint of a family (showing Y and HI) changes when they are given Medicaid.

magentaraven621

Consider an individual making choices over two goods, x and y with prices px and py, and who has income I

a) If utility is given by u(x; y) = x + y, are the tastes represented homothetic? Are the tastes quasi-linear? Explain.

b) Donald says that since all consumers face the same prices, their budget constraints all have the same slope, and so they should all consume roughly the same quantities of goods if their incomes were the same. Barry disagrees. Who is right and why?

suppose you are given a coupon for pizza. This coupon lowers the price for each additional pizza you buy by 5%. What happens to your budget constraint (compared to the budget with no coupon). Explain.

lilacotter512

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 1050 Lecture Notes - Lecture 4: Rationality, Equalize, Substitute Good

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