EC120 Lecture Notes - Lecture 6: Demand Curve, Opportunity Cost, Economic Surplus

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10 Apr 2018
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EC120 Full Course Notes
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Consumers derive less value from successive units of the same good. Each additional good adds utility but less than the previous one. The benefit is the marginal utility of the next unit. Individual demand curves derived from utility maximization: marginal utility is declining, as price increases, number of units purchased falls. Market demand just individual demand curves added together: market demand curve slopes downward. Maximizing utility requires substituting towards consuming more of other products. Substitution effects are always negative increasing relative price of a good reduces consumption of that good. Increasing the price of coffee reduces the set of choices i can afford to buy. Changing prices makes consumers feel richer or poorer. Both the substitution and income effects are negative on normal goods. The substitution effect is negative but the price effect is somewhat positive on an inferior good. (downward slope) Giffen good is a very inferior good.

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