Midterm Evaluations What you can do… n Study more, ready more, be more attentive in class, come see me more… What I can do… n More examples in class n Give labs out before the lab session n Give more homework/Give less assignments n Slow down in class n Put solutions to labs and homework on Blackboard/webpage n Easier tests and labs n More explanation on the simulation

Chapter 4 homework Questions 6, 8, and 16

Managerial Economics & Business Strategy Chapter 4 The Theory of Individual Behavior

Are we getting this?? (number 3) A consumer is in equilibrium at point A. The price of good X is $5 n What is the price of good Y? n What is the consumer’s income? n At point A, how many units of good X does the consumer purchase? n Suppose the budget line changes so that the customer achieves a new equilibrium at point B. What change in the economic environment led to this equilibrium? n Is the consumer better off or worse off as a result of the price change? B A Product X Product Y

Decomposing the Income and Substitution Effects Initially, bundle A is consumed. A decrease in the price of good X expands the consumer’s opportunity set. The substitution effect (SE) causes the consumer to move from bundle A to C. A higher “real income” allows the consumer to achieve a higher indifference curve. The movement from bundle C to B represents the income effect (IE). The new equilibrium is achieved at point B. Y II I 0 A X B C SE IE