able to understand the following concepts Consumer Behaviour Theory- Ordinal Approach and Cardinal Approach Total Utility‚ Marginal Utility‚ Relationship between Total Utility and Marginal Utility Law of Diminishing Marginal Utility Utility Analysis and Consumer Equilibrium- One Good Case and Two Goods Case Consumer- Who is a Consumer? Anyone who purchases and consumes any goods and services for the satisfaction of his/her wants is called a consumer. A consumer spends the money available
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LAW OF DIMINISHING MARGINAL UTILITY: The law of diminishing marginal utility describes a familiar and fundamental tendency of humanbehavior. The law of diminishing marginal utility states that: “As a consumer consumes more and more units of a specific commodity‚ the utility from the successiveunits goes on diminishing”. Mr. H. Gossen‚ a German economist‚ was first to explain this law in 1854. Alfred Marshal later onrestated this law in the following words: “The additional benefit which a person
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and label the following bundles: A (2‚10) B (6‚2) C (0‚4) D (8‚10) E (4‚6) (b) Assume A is indifferent to B (A ∼ B). On a single line‚ list all the bundles in descending order of preference using ( ) to denote strict preference and (∼) to denote indifference between adjacent pairs. In other words‚ use the form: A B C D E Answer: D E A∼B C‚ or D E B∼A C. 10 2 2. Consider an economic agent who has preferences that are represented by the utility function: u(x‚ y) = √ xy (a) for each pair of bundles
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Plot and label the following bundles. A (2‚ 10) B (6‚ 2) C (0‚ 4) D (8‚ 10) E (4‚ 6) b. Assume A is indifferent to B. On a single line‚ list all the bundles in descending order of preference using (≻) to denote strict preference and (∼) to denote indifference between adjacent pairs as‚ e.g.‚ in the form A ≻ B ≻ C ∼ D ≻ E. 2. Consider an economic agent who has preferences that are represented by the utility function: u(x‚ y) = √ xy a. For each pair of bundles A and B‚ indicate whether A ≻ B‚ A ≺
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viii Hence 1=1; [pic][pic]………………………………….ix [pic]…………………………………….x The ordinal utility theory uses the indifference curves(IC) to analyze the equilibrium condition of the consumer. Y IC X The consumer aims at consuming at the highest indifference curve. The furthest IC from the origin presents the highest satisfaction of two commodities‚ but is constrained by
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optimal bundle contains 10 scones. b) (2) Illustrate his optimal bundle in your diagram for (a); label it A. Why is this choice optimal? What conditions does it satisfy? Ans: This bundle maximizes Rajan’s utility‚ because it is on the highest indifference curve he can attain given his income and the prices he faces. The two conditions are i) it is on his budget line‚ so all his money is spent‚ and ii) at this bundle his marginal rate of substitution is equal to the price ratio. c) (2) How many kg
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Herriges (ISU) Chapter 10: The Rational Consumer Fall 2010 1 / 28 Outline 1 Utility: Getting Satisfaction 2 Budgets and Optimal Consumption 3 The Optimal Consumption Choice 4 Spending the Marginal Dollar 5 From Utility to the Demand Curve Herriges (ISU) Chapter 10: The Rational Consumer Fall 2010 2 / 28 The Rational Consumer One of the key assumptions underlying economics is the concept of the rational consumer Herriges (ISU) Chapter 10: The Rational Consumer Fall 2010 3 /
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units of X for 1 unit of Y. c. What is the marginal rate of substitution? X = 2‚ Y = 8 X = 4‚ Y = 2 ∆Y∆X=MRS -( 8-2 )( 2-4 )= - 62=3 8 6 4 2 1 2 3 4 5 Question 7: Suppose a customer has indifference map shown below. The relevant budget line is LZ. The price of Y is $10. 60 50 L 40 B 30 20 10 A M 0 10 20 30 40 50 60 70 80 a. What is the consumer’s income? Quantity Y = 50
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Question 1 0 out of 2 points | | | Opportunistic behavior on the part of the employer is possible because:Answer | | | | | Selected Answer: | employees often reduce their effort level if they are important to the company. | Correct Answer: | contracts are often incomplete and leave room for implicit understandings between the two parties. | | | | | Question 2 0 out of 2 points | | | In long-term job attachments‚ a worker’s wage:Answer | | | | | Selected Answer:
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Deriving Demand Functions - Examples1 What follows are some examples of different preference relations and their respective demand functions. In all the following examples‚ assume we have two goods x1 and x2 ‚ with respective prices p1 and p2 ‚ and income m. 1 Perfect Substitutes For perfect substitutes‚ we have to look at respective prices. After all‚ if goods are perfect substitutes‚ then the consumer is indifferent between them‚ and will have no problem adjusting consumption to get
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