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UConn ECON 1201 - Consumer Choice

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Econ 1201 1st Edition Lecture 5Outline of Last Lecture – Price Elasticity I. Demand ElasticityII. Supply Elasticity a. Classification and DeterminantsIII. Cross ElasticityIV. Income Elasticity Price elasticity of demandOutline of Current Lecture – Consumer ChoiceI. Donut ExperimentII. Consumer Choicea. Marginal, total, diminished and maximized utility III. Graphical Analysis of Utility Current LectureI. Donut Experiment - A student was given ten dollars and bargained with the teacher to pay $1.25 for the first donut. He continued to pay $1.25 for the next two donuts as well.As he ate more donuts, he wanted to pay less for each one. By the 7th donut, he did not want another donut even if it was free, and he wouldn’t even take it if Prof. Fisher paid him to eat it. - Shows DECREASE MARGINAL UTILITY: If you have too much of something, youcan get tired of it and not enjoy it as mucho Ex. Fish, Family and Friendso If you go on vacation with a friend you can get sick of them II. Consumer ChoiceUtility: satisfactionMarginal Utility: extra satisfaction from consuming an additional unitTotal Utility: total satisfactionDiminished Marginal Utility: As we consume more, we get less addition satisfaction from each additional unitThese 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.Utility Maximization: consume until marginal value is zero, then the total utility is maximized - If a person has no marginal cost- consume until the marginal value is zero- Mux/Px = Muy/Py , Mu = 0 then marginal utility is maximized because the slope of graph shows marginal utility- If you choose more of Mux then the marginal utility will go down and the marginal utility for Muy will go up (brings us to consumer equilibrium)III. Graphical Analysis of UtilityIndifference Curves: all possible combinations of 2 goods that give equal utility- Any Point will make you equally happy- Downward sloping- Convex to the origin (better off with a medium amount of each good than a lot of one and little of another)- Further away from the origin = higher utility- NOTE: indifference curves CAN NOT


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