01:220:102 Lecture Notes - Lecture 6: Takers, Opportunity Cost, Real Income

• School: Rutgers University
• Department: Economic
• Course: 01:220:102
• Professor: Barbara Crockett

Document Summary

Buyer"s problem has 3 parts: what you like, prices & your budget. An optimizing buyer makes decisions at the margin: continue to spend until marginal utility across all goods & services is same. An individual"s demand curve re ects an ability & willingness 2 pay for a good/service. Consumer surplus = difference btwn what a buyer is willing to pay 4 a good & what the buyer actually pays. Elasticity measures a variable"s responsiveness 2 changes in another variable. Not all incentives are monetary, some are social (i. e. : smoking) What do you like: everyone has diff. likes & dislikes, we all want biggest bang for our buck. Assume there is no borrowing & saving, only buying (simpli ed model; easier to work with) Assume that even though we use a straight line 2 represent purchase choices, we only purchase whole units. Real income: income divided by price of product. Not all downward-sloping lines are demand curves!