ECON 1000 Lecture Notes - Lecture 11: Opportunity Cost, Substitute Good, Economic Surplus

• School: York University
• Department: Economics
• Course: ECON 1000
• Professor: George Georgopoulos

Document Summary

When income increases, the demand for a normal good increases. When income increases the demand for inferior goods decreases. Marginal utility is measured in units called utils , which are arbitrarily assigned and vary from person to person. It is hard to measure the amount of satisfaction one will receive from having a good, so these are mainly estimates. There is no official scale to determine precisely what is worth how many utils. The paradox of value why is water, which is essential, is far cheaper than diamonds which are not essential? is resolved by distinguishing between total utility and marginal utility. We use so much water that the marginal utility from water consumed is small, but the total utility is large. We buy few diamonds so the marginal utility from diamonds is large, but the total utility is small.