Intermediate microeconomic theory
The formula for the price elasticity of demand:
(dQd/dP) x (P/Qd)
Suppose that the demand curve in the market for good X shifts to the right. Assuming that the supply curve remains unchanged, what would you expect to happen to the equilibrium price and equilibrium quantity?
Both the equilibrium price and equilibrium quantity would be higher.
Consider the market for wheat and suppose that the cost of an important input to the production of wheat goes down. What would you expect to happen in the market for wheat?
The supply curve would shift right.
A curve which shows all the consumption bundles that give the consumer the same level of utility is called
an indifference curve.
in a perfectly competitive market, a price ceiling will only prevent the market from clearing if it is set
below the market-clearing price.
for an individual consumer, indifference curves
cannot be thick. cannot intersect each other. cannot be upward sloping.
According to the equal marginal principle, at the optimal (interior) consumption bundle, the consumer
equalizes the marginal utility per dollar spent on each good.
Holding the supply curve fixed, a rightward shift of the demand curve will lead to an
increase in the equilibrium price. excess demand at the old equilibrium point. increase in the quantity traded in equilibrium.
if the price elasticity of demand for a good is Ed = -0.75, we refer to demand as
inelastic
Suppose that the demand function for a good is given by Qd = 100 - 2p, while the supply function is Qs = 4p - 20. The market equilibrium price and quantity are
p* = 20 and Q* = 60
The budget constraint (in the two-good case) is represented by the equation:
p1q1+p2q2>_Y
A good is said to be inferior if:
quantity demanded of the good is decreasing as income increases.
Indifference curves for an individual who treats goods x and y as perfect complements are
shaped like the letter L.
Suppose that bagels and cream cheese are complements. When the price of bagels goes down, we would expect the demand curve for cream cheese to
shift to the right
According to the Law of Demand, the demand curve for good will
slope downward.
If an individual has preferences that are represented by a Cobb-Douglas utility function, then at the optimal choice, the consumer will
spend a fixed fraction of her income on good 1, and a fixed fraction of her income on good 2.
Suppose an individual considers goods X and Z to be perfect substitutes, where for each 1 unit decrease in Z, she would need a 2 unit increase in Z yo maintain the same level of satisfaction. If the price of X is $2, while the price of Z is $3, then at the optimal bundle, she should
spend all her income on good Z.
Microeconomics is best described as the study of
the allocation of scarce resources.
Suppose that a consumer's income, Y, and the price of good 2, p2, stay fixed, while the price of good one, p1, decreases. If good 1 is represented on the horizontal axis and good 2 on the vertical axis (as in our usual convention), this will cause:
the budget line to pivot outwards, with the same vertical intercept and a flatter slope.
Suppose that the supply curve for yo-yos shifts to the left. The resulting change in the equilibrium price will be greater if
the demand curve is relatively steep than if the demand curve is relatively flat.
The supply and demand model is most applicable when
the market is (or is close to being) perfectly competitive.
The marginal rate of substitution of good x for good y is equal to
the maximum amount of good y the consumer is willing to give up in exchange for a marginal increase in the amount of good x.
An individual consumer's preferences over consumption bundles are transitive if
whenever bundle A is preferred to bundle B and bundle B is preferred to bundle C, the consumer also prefers A to C.
