ECON-221 Lecture Notes - Lecture 22: Marginal Utility, Giffen Good, Marginal Cost
24 Sep 2020
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Document Summary
Law of supply- supply curves have the tendency of being upward sloping. Firms with large amounts of stocks are able to quickly increase the amount supplied in the market and react to changes in demand: time horizon- the longer the time horizon, the higher the elasticity tends to be. Producers are able to search for cheaper alternatives and revise their production plans more conveniently. Utility represents the satisfaction that an individual derives from consuming a given good or taking a certain action. It is measured in utils per unit of time. Important to specify unity of time because preferences vary depending on the time window. Decreasing marginal utility captures the fact that the utility from consuming an extra unit of a given good decreases with the number of units that have been previously consumed. Cost-benefit principle states that an action should be taken if the marginal benefit is greater than the marginal cost.
