Expert answer:simple eco homework

Solved by verified expert:List five lessons or takeaways that you have learned in this course this week that you consider to be important. Briefly explain each of them. The takeaways you choose can be big or small. What matters is that these were new pieces of knowledge to you.Choose one of the five takeaways and explain briefly how it would solve or help you solve a problem or exploit an opportunity that you have encountered already in your past experience or that you know you will encounter when you go back to your company/or country/ or find a job after graduation.This must be a typed document, double spaced and 12-point font.simply do the homework but I am a college student so the format for college student
week_6_behavior_of_the_consumer.pptx

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Chapter 6
Theory of
the
Consumer
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Utility
• The satisfaction you get
from consuming a good or
service.
•Subjective
LO1
Measurement of Utility
• Util is one unit of satisfaction
• Cardinal Measurement –
quantitative measure.
• Ordinal Measurement –
qualitative measure.
LO1
Total Utility
•The total amount of
satisfaction from
consuming a good or
service.
LO1
Marginal Utility
• The extra satisfaction from
consuming an additional unit of
a good or service.
• MU = ΔTU/ΔQ, where ΔQ = 1.
LO1
Total Utility and Marginal Utility
Total Utility
4
5
6
7
LO1
0
]
10
]
18
]
24
]
28
]
30
]
30
]
28
(3)
Marginal
Utility,
Utils
10
8
30
Total utility (utils)
0
1
2
3
(2)
Total
Utility,
Utils
4
2
0
-2
TU
20
10
0
6
Marginal utility (utils)
(1)
Tacos
Consumed
Per Meal
1
2
3
4
5
6
7
1
2
3
4
5
6
7 MU
10
8
6
4
2
0
-2
Law of Diminishing Marginal Utility
LO1
• As consumption of a good or
service increases, the
marginal utility obtained
from each additional unit of
a good or service decreases.
• Explains downward sloping
demand curve.
Theory of Consumer Behavior
• Rational behavior – consumer
maximizes total utility given
their budget limitation.
• Preferences
• Budget constraint
• Prices
LO2
The Consumer’s Budget Line
12
The Budget Line: Combinations of DVDs
and Books Attainable with $120
Units of
DVDs
(Price = $20)
Units of
Books
(Price=$10)
Total
Expenditure
6
0
$120
5
2
$120
4
4
$120
LO4
3
6
$120
2
8
$120
1
10
$120
0
12
$120
10
Income = $120
Pdvd = $20
8
=6
Unattainable
6
Income = $120
Pb = $10
4
2
0
Attainable
2
4
6
8
10
12
14
= 12
Budget Line
a. Points on or inside the budget
line represent points that are
unattainable given the relevant
income and prices. Points outside (up
and to the right) the budget line are
unattainable.
Budget Line
b. Tradeoffs and opportunity costs – the
negative slope of the budget line
represents that consumers must make
tradeoffs in their consumption decisions;
the value of the slope measures precisely
the opportunity cost of one more unit of a
good under analysis.
Budget Line
c. Limited income and positive
prices force people to choose.
Note that the budget line does
not indicate what a consumer will
choose, only what they can
choose.
Budget Line
d. Income changes will shift the
budget line. Greater income will shift
the line out and to the right, allowing
consumers to purchase more of both
goods. Increasing income lessens
scarcity, but does not eliminate it.
Utility Maximizing Rule
• Consumer allocates his or her income so that
the last dollar spent on each good or service
yields the same amount of extra (marginal)
utility.
• Algebraically,
MU of product A
=
Price of A
LO2
MU of product B
Price of B
Numerical Example
The Utility Maximizing Combination of Apples and Oranges Obtainable with an Income of $10
(1)
Unit of Product
(2)
Apple (Product A):
Price = $1
(3)
Oranges (Product B):
Price = $2
(b)
(a)
Marginal Utility
Marginal Utility,
per dollar
Utils
(MU/Price)
(b)
(a)
Marginal Utility
Marginal Utility,
per dollar
Utils
(MU/Price)
First
10
10
24
12
Second
8
8
20
10
Third
7
7
18
9
Fourth
6
6
16
8
Fifth
5
5
12
6
Sixth
4
4
6
3
Seventh
3
3
4
2
LO2
Decision-Making Process
Sequence of Purchases to Achieve Consumer Equilibrium
Choice
Number
LO2
Potential Choices
Marginal
Utility
per Dollar
Purchase Decision
Income
Remaining
1
First Apple
First Orange
10
12
First orange for $2
$8 = $10 – $2
2
First Apple
Second Orange
10
10
First apple for $1
and Second orange for $2
$5 = $8 – $3
3
Second Apple
Third Orange
8
9
Third orange for $2
$3 = $5 – $2
4
Second Apple
Fourth Orange
8
8
Second apple for $1
and Fourth orange for $2
$0 = $3 – $3
Deriving the Demand Curve
Price Per
Orange
Quantity
Demanded
$2
4
1
6
Price per orange
$2
$1
DO
0
4
6
Quantity demanded of oranges
LO3
Income and Substitution Effects
• Income Effect
• The impact a price change has on a
consumer’s real income and thus on the
quantity demanded.
• Substitution Effect
• The impact a price change on a product’s
relative expensiveness and thus on the
quantity demanded.
LO4
…
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