ECON 1101 1st Edition Lecture 23 Outline of Last Lecture II Income Change III What happens to optimal consumption bundle if the price changes a Income effect b Substitution effect Outline of Current Lecture IV Consumer Theory V Theory of the Firm a Costs b U Shaped Average Cost c Constant Return to Scale d Economics of Scale e Short run supply of a firm Current Lecture Price of a good goes up as If you are poorer you buy less get less Optimal consumption bundle changes A B on the same indifference curve ALWAYS Labor Supply when the price goes up there is a decrease in income Income effect Leisure is a normal good when you have more money you spend more on leisure Example Lottery winners tend to work less after they win the lottery When the wage increases so does leisure Wage Increase substitution effect Opportunity cost of leisure increases Consume less leisure Net effect income effect predominates People enjoy leisure time Fixed Cost ex 4 to run a factory no matter what you make A cost you have to pay no matter the quantity produced 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 Variable input cost example labor Amount you have to pay based on how much you produce example would be labor or materials Diminishing marginal returns Marginal additional Total cost fixed cost variable cost average Fixed cost fixed cost quaitity average variable cost variable cost quantity marginal cost change in total cost from increasing output
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