· Quantity Demand is a number
o Price vs. quantity demanded
o “Law” of demand because there is decades of empirical research and nothing has proven it wrong yet
§ In a runup to a storm, prices on food and water went up because people demanded necessities more
· Law of Demand not just a number
o Applies to life
o “price” of decisions, risky behaviors, etc.
· Demand schedule
o Write down every possible price that someone can charge for an item, and the quantity of the good you would buy at each price
o Rachel’s demand schedule for Burritos
§ Price/tradeoff Quantity
§ 0 12
§ 0.75 10
§ 1.50 8
§ 2.25 6
§ 3.00 4
§ 3.75 2
§ 4.50 0
o Think of demand schedule as a computer code for each person imbedded in each person
o Even though price is still zero, there is still a cost to eat a burrito (and marginal utility plays a part)
o At each price, we have different reaction to how much we will use the quantity of burritos
§ Use it for extra meals, extra uses, etc.
o Tradeoff for goods also includes alternate goods you could possibly buy and how much you demand them
o If graphed, it would be constantly diminishing and look something like this:
· Wealth Effects
o When prices go up, you get poorer; when you are poorer, you consume less
o Suppose daily income is $50
§ Goods: Corn, or everything else
§ Corn price is $1 and everything else= constant (not a concrete price)
§ Nominal income: $50 vs. Real income: 50 corns
· Real income = purchasing power
§ If choice was to spend $10 on corn and $40 on everything else, doubling the price of corn would seriously effect you
o If you raise prices on energy, people who are poorer will have a harder time meeting their basic needs
· Diminishing Marginal Utility
o Each unit of a good that you purchase gives you less satisfaction than the previous one
§ Exception: Network goods
§ Example: Ethan Glass eating doughnuts for forty minutes
§ Also: Non-stop sex on the beach?
o Marginal utility of a good would make it less valuable to you after you consume each one
· Demand curve is a plot of marginal values
· What information you can obtain from a demand chart
o 1) Marginal values of a good
o 2) Total expenditures for a good
o 3) Total values for everything (answer to water-diamond paradox
§ Example: When Rachel buys 4 burritos, her total value is $12.00
o 4) Buyers’ net gains => Consumer surplus
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