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Chapter 3

ECON 103 Chapter Notes - Chapter 3: Junk Food, Broccoli, Fallacy


Department
Economics
Course Code
ECON 103
Professor
Iryna Dudnyk
Chapter
3

Page:
of 2
Economics Reading Notes Chp.3
Substitution: Everyone is willing to trade some amount of one good for some amount of
another good
Bribing kids with desert if they eat broccoli; they are trading a bad thing(broccoli) for a
good thing(desert)
Everyone has their price
Act of the will (someone is willing to trade one good for another)
Does not state how much you are willing to give for how much of another good
Being able to pay for something just means you have the income for it, whereas being
willing to pay means that you want to pay for something, or don’t want to pay for
something( illegal drugs. Etc)
We trade off satisfaction now for a shorter life later (eating junk food, speeding)
3.1. Trade-Offs are Everywhere
If we want a new house, we have to drive an old Honda
New clothes, we have to give up eating Chinese food
Some laws prevent trade-offs, such as traffic fines
Everyone makes different trade offs
3.2. The Fallacy of Priority in Consumption
Different combinations of consumption can generate the same amount of satisfaction
To say that someone “needs” something is to say that it is a priority in consumption, and
that an individual will not live if the need is not met
3.3. Marginal Value
The maximum amount an individual is willing to sacrifice, in order to obtain an additional
amount of another good
Table: 3-2
Sally
Apples
Hotdogs
A
2
6
B
3
4
In this table, Sally is is indifferent to the two choices (A, and B)
This means that she is willing to trade 2 hotdogs, for 1 apple; that is the MV for Sally.
o This marginal value will change for different people.
3.4. Exchange
Exchanges can be formal and legal such as when I spend money to fill up my car
Others can be informal and non-enforceable such as when I promise my son to a movie
if he cuts the lawn
Even conversations can be considered exchanges
Trade does not just occur because one person has a surplus
o Trades take place when individuals have different marginal values
o Mutual voluntary trade makes both parties better off
o If you are willing to give 4 hotdogs for 1 apple; and someone is willing to give
1apple for 2 hotdogs, then trading at 3hotdogs for 1apple, will make both parties
better off.
Without increasing the total amount of goods, both parties were made
happy because they value the goods differently!