ECON DAY 4 NOTES BOUDREAUX
ECON DAY 4 NOTES BOUDREAUX Econ 103
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This 4 page Class Notes was uploaded by M on Sunday September 20, 2015. The Class Notes belongs to Econ 103 at George Mason University taught by Donald Boudreaux in Spring 2014. Since its upload, it has received 158 views. For similar materials see Microeconomics in Economcs at George Mason University.
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Date Created: 09/20/15
DAY 4 Specializationone way to move the production possibilities curve to move out promote economic growth Substitution for machinery Innovativeness the propensity for people to innovate come up with new ideas 0 New ideas of production are created through creativity ie machines More human beings make us wealthier Yes people consume things but people also produce things There are no natural resources A resource is something we could put into use What are the economics signals that promote this innovation quotPrice theoryquot Set on markets l by supply and demand of a product Interactions of suppliers and demandersconsumers Consumers are the ultimate deciders of what is good economically If a supplier is not paying attention to demand that supplier is no good Demanders consumers do things to get satisfaction grati cation l economists call it utility the more utility a consumer gets the better off they are consumers aim to get as much utility as possible 0 Utilitythe total satisfaction received from consuming a goodservice 0 Utility can be seeing other people happier quotThe Law of Diminishing Marginal Utilityquot Describes every consumer s actions All other things equal quotceteris Paribusquot the greater a consumer s access to some good or service the less is the utility that each unit of that good or service supplies to that consumer Example extremely thirsty and you drink water the satisfaction you get from drinking the water is what economists call utility the rst bottle gives you more utility than the second water the 8th bottle negative utility Example love a certain pair ofjeans you wake up and you have 100 friends come over and you give all the jeans away but one the value for each pair rises as each pair ofjeans is given away each unit becomes more valuable the less utility you get 0 The less of something you have the more valuable it is The more the access to something the less the utility The value of something lessens when something becomes more available Example if you take more than one newspaper from the vending machines the margin of utility of the second newspaper is zero Law of Demand All other things equal a change in the cost of acquiring some good or service will cause the quantity demanded of that good or service to change in the opposite direction 0 Quantity demandthe amount of a good that people want to buy at a given price Cost T buyl Cost l buyT Demand for apples as the cost falls the quantity you buy rises if the price rises you will seek to acquire fewer apples The law of demand exists because of the law of diminished marginal utility The reason you don t buy the second pound of apples it s because it doesn t give you as much marginal utility l the law of diminished marginal utility 0 Stores lower prices so we buy more Quantity demanded and price inverse relationship As the price of something rises the quotquantity for demandquot falls and vice versa Price is not the only thing that affects demand A movement along a given demand curve is called a change in quantity demanded A change in quantity demanded is caused by a change in one thing only the price of that quantity Increased demand causes an outward growth in the PPC Decreased demand causes an inward growth in the PPC Differentfrom a change in demand If the demand curve moves that is a change in demand Demand curves can change if it moves away from the origin that represents a higher demand if it goes to the left lower demand Causes 1 Change in price 2 Change in everything else Good service product 6 factors that cause demand to change Determinants no particular order Any one or more of these things change demand either increases or decreases 1 Consumers39 tastes and preferences 2 Consumer39s income a If your income is 0 then your demand is 0 b Normal doodsif as consumer income changes demand for that good changes in the same direction c Inferior goodsdemands for a certain good fall because of a higher income 3 Price of substitute goods a 2 goods are substitute for each other if as the price of one changes the demand for the other changes in the same direction b Example Coke vs Pepsi quotsubstitute goods i If the price of Coke rises the demand for Pepsi rises 4 Price of complementary goods a 2 goods are complements to each other if as the price of one changes the demand for the other changes in the opposite direction b Example coffee and coffee cream i If the price for coffee increases the one who sells coffee cream is sad l ii If people drinkbuy less coffee the demand for coffee cream decreases as well 5 Expectations of the future availability of the good a If it is expected that the good will become more readily available in the future the demand for the good today will fall and vice versa i Availability T demand i b Example if you know a dress will go on sale you wait and buy it when it goes on sale your demand for it falls 6 Number of consumers people in the market a Only applies to quotmarket demand curvesquot i A market demand curve is a demand expressed by 2 or more individuals b The greater the number of consumers the higher the demand and vice versa Elasticity Another word for responsiveness how much one thing changes when you change something else that affects it Elasticity is not the same thing as slope A demand curve does not tell you the intensity unlike slope A price cut can have a larger impact in the quantity demand if the elasticity is different Elasticity responsive to the touch Elasticity of demanda measure of how responsive quantity demanded is to price changes E gt 1 elastic E lt 1 inelastic E of change of quantity demanded change of price
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