UTA Econ 2306 Professor Gkergki Exam 2

Total Utility

Overall satisfaction

Marginal Utility

Change in total utility

Optimal choice

the decision that maximizes utility given budget constraints

Optimal Utility equation

Mux/Px=Muy/Py

The Indifference curve

The optimal utility curve, it is convex

Surplus

Qs>Qd

Shortage

Qs<Qd

Price Ceiling

Creates shortage, maximum price

Price Floor

Creates surplus, minimum price

Ed- Own price elasticity of demand

Responsiveness of Qd when the P of the good changes

Own price elasticity of demand formula

Ed= %^Q/ %^P

0<Ed<1

Inelastic

Ed=1

Unit Elastic

Ed>1

Elastic

Ei- Income inelasticity of demand

Responsiveness when I changes

Income elasticity of Demand

%^Q/ %^I

Ei>0

Normal

0<Ei<1

Necessity

Ei<o

inferior

Exy

Cross Price Elasticity

Cross price elasticity formula

%^Qx/ %^Py

Exy>0

x,y substitutes

Exy<0

x,y complements

Exy=0

x,y unrelated

Ed=2

A 1% change in price results in a 2% change in Q demanded

Ei>1

Luxury