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Study Guide for ECON1011 midterm
Study Guide for ECON1011 midterm summarizing key concepts
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ECON 1011 Key Concepts(I’m not sure if I’ve noted every single concept we need so feel free to add. I also added
some graphs and screenshots from the lectures but I don’t have every single graph)
Utility:
a measure of happiness/ satisfaction
Marginal Utility (MU):
the utility one gets from consuming
one more unit of a good
-
Law of Diminishing Marginal Utility:
Utility increases
at a decreasing rate
Rules of Utility Maximization:
1.
Allocate all the money: If you take the price of the good multiplied by the good itself, do
this will all the other goods, and add the goods together (PxX+PyY….) it will = M
2.
Equate all marginal utility per dollar:
-
Good = x
-
Px= price of good
-
MUx
-
MUx/ Px = the MU agent gets from $1 worth of the good
Marginal Utility Cost Per Dollar for Each Good:
-
MUx/Px > MUy/Py: More utility from a dollar of x than y so the agent buys more of x
-
MUx/Px < MUy/Py: agent buys more of y because they get more utility from y
-
MUx/Px = MUy/Py: when an agent allocates money it must be the case that the utility
from x=y
Utility Maximization:
1.
PxX + PyY= M
2.
MUx/ Px = MUy/Py
-
(assume agent spends all their money)
Table of Preferences/ Utility Table:
Ex: Indifference Curve:
shows a combination of two goods
that give a consumer equal satisfaction
and utility thereby making the consumer indifferent. Along the curve, the consumer has an equal
preference for the combinations of goods shown—i.e. is indifferent about any combination of
goods on the curve (found this explanation online but it helps)
Rules:
1.
Farther from the origin is better
2.
Cannot cross
3.
There are an infinite number
4.
Slope down
Budget Constraint:
what a consumer can buy is limited
by how much money they have
-
PxX + PyY = M (can be rearranged to be Y= M/ Py - Px/ Py x, similar to Y= b-mx)
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