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Econ October 12.docx

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Department
Economics
Course Code
ECON101
Professor
All

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Econ October 12, 2010 Reading – Chapter 5 Today: Law of diminishing marginal utility, consumer equilibrium Continued… Heroin is illegal – law enforcement restricts supply, results of making heroin illegal,  consumption falls slightly price rises significantly, increased street crime, increased  revenue for drug sellers Heroin is legal – consumption rises slightly, price falls significantly, street crime goes  down, law enforcement costs goes down, decrease in drug trafficking What’s wrong with this? (no ethical view) Two groups: addicts and dabblers (occasional users who abstain from heroin when price  is high)  If heroin is legalized, price falls initially significantly, and dabblers start to use heroin.   Dabblers won’t remain dabblers very long. Utility – the satisfaction, happiness or need fulfillment that consumers receive from the  goods and services they consume Marginal Utility – the change in utility that results from an incremental change in  consumption of a good or service The Law of Diminishing Marginal Utility – The greater is the amount consumed of a  good or service, the smaller is the increase in utility from an incremental increa
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