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Power utility function9/5/2023 Now let’s assume that there exist combination points that give the same amount of utility. If we follow the line shown, our utility will increase continuously. Note that with respect to different combinations, our utility will change. 2 - Showing the values on a cartesian coordinate system We can represent these values on a Cartesian coordinate system as in Figure 2 below.įig. Obviously, your value gained from eating a single peach is much more than eating a slice of watermelon. This points out the fact that the utility of eating two peaches and seven slices of watermelon is the same as the utility of eating 3 peaches and 2 slices of watermelon. 1 - Different consumption bundles of watermelons and peachesĭid you notice anything between the first and the second row? The third column of the first row equals 11, and similarly, the first column of the second row equals 11. It takes its only one argument, \(x_1\), and matches it with a value, \(y_1\). This is a utility function with a single argument. If an agent with the utility curve \(u\) consumes \(x_1\) amount of peaches, she will gain utility that is equal to \(y_1\). We can show this function with the following curve.įig. Let’s assume a utility function, \(u\), which shows the amount of utility gained from peach consumption. Single-argument utility functions are a common way to show the utility gained from a single good or preference. Let’s say that your utility from consuming a bottle of ginger soda is denoted with \(u(\hbox)\). Price Determination in a Competitive Market.Market Equilibrium Consumer and Producer Surplus.Determinants of Price Elasticity of Demand.Cross Price Elasticity of Demand Formula.Effects of Taxes and Subsidies on Market Structures.Monopolistic Competition in the Short Run.Monopolistic Competition in the Long Run.
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