ECO105Y1 Lecture Notes - Lecture 2: Normal Good, Marginal Utility, Demand Curve
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ECO 105Y Online
Week of 19 September
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
your wants and their intensities
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
·Availability of substitutes
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.
·Additional benefit from a choice
·Changing with circumstances (How valuavle is the is the last one as
·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
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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