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MACRO GOALS: The three goals of a mixed economy that are most relevant to the study of macroeconomics are full employment, stability, and economic growth. Full employment is the condition in which all of the economy's available resources are engaged in the production of goods and services. Stability is the condition in which the economy avoids large changes in production, employment, and especially prices. Economic growth is the condition in which the economy's production possibilities are expanding over time.

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Lesson 10: Utility and Demand | Unit 4: On To Demand Page: 14 of 21

Topic: A Generalized Choice <=PAGE BACK | PAGE NEXT=>

  • In many cases buyers are making choices between ONE good and EVERY other good that they could be purchasing.

  • The presumption is that every other good satisfies the rule of consumer equilibrium.

  • The question now becomes: How much beach frolicking do I undertake (or purchase) given that my going marginal utility-price ratio is 3 utils per dollar for other goods?

    1. Employing the rule of consumer equilibrium, I need to equate the marginal utility-price ratio (MU/P) for beach frolicking with the marginal utility-price ratio for other goods.

      MU/P for beach frolicking = MU/P for other goods

    2. Because the marginal utility-price ratio for other goods is 2 utils per dollar, the time I spend at the beach needs generates to generate the same 2 utils per dollar.

    3. If the price per hour at the beach is $2, then I need to stay at the beach until my marginal is 4 utils, a value generated at 5 hours. This gives me a marginal utility-price ratio (MU/P) for beach activity of 2 utils per dollar.

    4. I have satisfied the rule of consumer equilibrium!

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A legally established minimum price that is imposed on a market ABOVE the price that otherwise would be achieved in equilibrium. A price floor is placed on a market with the goal of keeping the price high, presumably based on the notion that the equilibrium price is too low. If imposed on a competitive market free of market failures, a price floor creates a surplus, or excess supply.

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