Econ 102 Week 3 Notes
Econ 102 Week 3 Notes Econ 102
Popular in Microeconomic Principles
Popular in Microeconomics
This 3 page Class Notes was uploaded by Michelle Pope on Thursday September 8, 2016. The Class Notes belongs to Econ 102 at University of Illinois at Urbana-Champaign taught by Dr. Issac DiIanni in Fall 2016. Since its upload, it has received 165 views. For similar materials see Microeconomic Principles in Microeconomics at University of Illinois at Urbana-Champaign.
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Date Created: 09/08/16
Supply and Demand (8/31, 9/6, 9/11) Wednesday, August 31, 2016 11:29 AM 1. Theory of Marginal Utility --1870s (modern economics) a. "Marginal Revolutionaries" i. Carl Menger ii. William Stanley Jevons iii. Leon Walras b. Marginal Revolution: discovery of the theory of marginal utility in the early 1870s 2. Ch. 1 The General Theory of the Good--Menger a. Good: useful thing that is subject to human control b. Requirements: i. Human need must exist ii. Object must have properties that allow it to satisfy this need iii. Humans must know of this connection iv. Humans must have sufficient control over the object to make use of it c. EX: Sun is not a good --human need but cannot control it d. If you don’t have control of the object, it is not considered a good e. Causal Connection Between Goods i. Consumer Good (1st order good): good that serves our desires directly ii. Producers Good (Higher order good): good that is used in the production of another good iii. Structure of Production: set of steps by which producer goods are used to produce a consumer good iv. EX: car is a first order good; steel is a higher order good for a car f. Theory of Derived Demand i. Labor puts value into the good (IE coal workers put the value into coal) ii. Classicals-value starts at the top of production 1) Problem is still what determines the price of labor iii. Menger- classical argument is an infinite loop; consumers put value in the product; value starts at the bottom of the chain and travels up 1) IE the value of the car makes the steel valuable; the labor is valuable because of the value steel produced from the labor iv. Theory of Derived Demand: "value of goods of higher order is derived from that of the corresponding goods of lower order" 1) IE the value of the car makes the steel valuable; the labor is valuable because of the value steel produced from the labor iv. Theory of Derived Demand: "value of goods of higher order is derived from that of the corresponding goods of lower order" 1) Opposite of labor theory of value 2) Can trace value of anything 3) No infinite regress problem 4) If the good is not solely used to produce one thing, then the value is not dependent on one 1st order good a) If the value of one 1st order goes down, the value of a 2nd order good might go down but not substantially 3. Ch. 3 Theory of Value --Carl Menger a. Marginal: at the edge b. Marginal Unit: next unit gained or given up i. EX: the next slice of pizza c. Marginal Utility: additional utility that a person gets from having one more unit of a good or loses from having one less unit of a good d. Theory of Marginal Utility (Marginal Theory of Value): theory that the price of a good is determined by its marginal utility e. Ordinal Ranking: list in order of preference i. EX: ranking of uses for water 1) Drinking 2) Plants (food) < --Satisfied desires 3) Shower 4) Wash dishes 5) Wash car 6) Plant roses ^ margin (if you have only 5 buckets of water) 7) Goldfish <unsatisfied desires ii. These can shift up or down if you gain more water or lose water iii. Marginal utility is different depending on where the margin is iv. Value of lowest before the margin determines the value of a good; its utility at the edge f. Solves water-diamond paradox i. Diamonds (which has little or no use) can be traded for other more valuable goods g. Opportunity Cost: next best alternative given up when making a choice i. Every choice involves an opportunity cost ii. EX: hungry and thirsty and have $1; opportunity cost is the good that you don't choose to satisfy iii. "Ain't no such thing as a free lunch" 1) If lunch is not the highest priority, then your highest priority is your opportunity cost 2) What you would be doing if you weren't going to lunch is your ii. EX: hungry and thirsty and have $1; opportunity cost is the good that you don't choose to satisfy iii. "Ain't no such thing as a free lunch" 1) If lunch is not the highest priority, then your highest priority is your opportunity cost 2) What you would be doing if you weren't going to lunch is your opportunity cost h. Diminishing Marginal Utility: as a person acquires more units of a good, the satisfaction they derive from each new unit is lower than the previous unit i. EX: the more water you have and the more you satisfy your ordinal ranking of desires, each unit of water's value decreases with each lower priority i. Increasing Marginal Opportunity Cost: as a person gives up more units of a good, the satisfaction they give up with each new unit is higher than the previous unit i. EX: if you give up water, you are giving up more important desires which increases the value of each unit 4. Ch. 4 Trading conditions a. Four conditions for trade to take place i. Reverse values ii. Both parties must recognizes the opportunities for exchange iii. Both parties mush have the power to transact iv. The benefits of the transaction must outweigh the cost
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