Economics Dependent on the Consumer (2 pages)

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Economics Dependent on the Consumer



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Economics Dependent on the Consumer

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A lecture on how economics works looking at consumers. The lecture goes over budget constraints and indifference sets.


Lecture number:
6
Pages:
2
Type:
Lecture Note
School:
The University of Oklahoma
Course:
Econ 1123 - Princ. of Econ-Micro
Edition:
1

Unformatted text preview:

ECON 1123 1st Edition Lecture 6 Outline From Previous Lecture Lecture 5 I Changes in Demand or Supply The General Cases II Total revenue TR and Total expenditure TE III The concept of elasticity A Price Elasticity of Demand Ed 1 Three Possibilities 2 Relationship between Ed 3 Determinants of Ed Outline Lecture 6 I Consumer Choice The Essence of the Problem II Subjective Consumer Preferences Indifference Sets III Objective Consumer Circumstances The Budget Constraint Lecture 6 Notes I Consumer Choice The Essence of the Problem In a general sense a person will have unlimited material desires versus limited economic resources Individually there will be subjective desires how much do I value this good versus objective circumstances how much can I afford to pay for the good Note how do we measure subjective desires First we must assume that individuals can rank in order their preferences II Subjective Consumer Preferences Indifference Sets Corollary consumers recognize some combinations of goods as equally satisfying The consumer is said to be indifferent among such combinations Example You could have these combinations Combo A 16 Apples 3 nuts Combo B 12 Apples 4 nuts Combo C 10 Apples 5 nuts These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Combo D 8 Apples 7 nuts Combo E 6 Apples 9 nuts Each of these combos will give you the same level of satisfaction so you are indifferent This illustrates the concept of diminishing marginal utility Increasing consumption of a good results in smaller and smaller additions to total utility satisfaction Corollary conversely as additional units of a good are given up larger and larger amounts of utility are sacrificed This creates an indifference curve The Indifference curve shows all combinations of goods yielding equal levels of satisfaction The indifference curve will be convex which reflects the principle of diminishing marginal



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