ECON 208 Lecture Notes - Lecture 4: Inferior Good, Normal Good, Economic Surplus

• School: McGill University
• Department: Economics (Arts)
• Course: ECON 208
• Professor: Irakli Japaridze

Document Summary

Marginal utility (cid:120) total utility increases but marginal utility (the increment your happiness increases) decreases. Marginal utility y t i l i t. In the second equation we see consumer adjusting consumption therefore the ratios of marginal utilities are in response to changes in subjective relative price. If the price of milk were to decrease, your equation would look like this: (cid:120) mumilk/mumineralwater>pm/pw. If milk is inferior you will buy more mineral water. If milk is normal you will buy more milk (cid:120) May 7, 2013 (cid:120) slope of demand curve: overall effect of price change is the combination of income and substitution effect. but if tax increases to 50% then staying home costs . Consumer surplus (cid:120) difference between what consumers are willing to pay and what they actually pay at each unit. Consumer surplus if price is to pay ($) Important to understand difference between marginal values and total value.