ECON 103 Lecture Notes - Lecture 4: Money Illusion
13 Jan 2016
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January 17, 2014 lecture # 4 diminishing marginal value. Thus, the number of real utility that can be purchased does not change: no unique measure of real income - depends on the price level you choose. Relative price: nominal price: the actual number of dollars cost to purchase a good, relative price: price measured in terms of the number of other goods sacrificed. Px/py giving up good y when consuming additional unit of good x. Behavior depends on real income and relative price: when price increases, the amount a consumer is able to buy decreases. Thus, quantity demanded decreases: money illusion when behavior depends on nominal. Law of demand: there is an inverse relationship between a good"s relative price and its quantity demanded, other things held constant: what we are willing to consume (preferences, three principals that determines.
