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Lecture 2

ECO105Y1 Lecture Notes - Lecture 2: Normal Good, Marginal Utility, Demand Curve


Department
Economics
Course Code
ECO105Y1
Professor
Avi Cohen
Lecture
2

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ECO 105Y Online
2016/2017
Unit 2
Week of 19 September
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4WEIGHING BENEFITS, COSTS & SUBSTITUTES
Your willingness to buy a product or service depends on your ability
to pay, comparative benefits and costs, and the availability of subs
titutes.
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·Preferences
your wants and their intensities
·Demand
consumers’ willingness and ability to pay for
a particular product or service
·For any choice, what you are willing to pay or give up depends on
·Cost
·Availability of substitutes
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6SMART CHOICES ARE MARGINAL CHOICES
Key 2 states, “Count only additional benefits and additional costs.
” Additional benefits mean marginal benefits – not total benefits
– and marginal benefits change the circumstances.
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·Marginal benefit
·Additional benefit from a choice
·Changing with circumstances (How valuavle is the is the last one as
you purchase)
·Marginal benefit explains the diamond/water paradox
·Willingness to pay depends on marginal benefit,
not total benefit
·Water is abundant, marginal benefit is low
·Diamonds are scarce, marginal benefit is high
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8THE LAW OF DEMAND
The demand curve combines two forces –
switch to substitutes; willingness and ability to pay – determinin
g quantity demanded, and can be read as a demand curve and as a marg
inal benefit curve.
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