ECON 103 Chapter Notes - Chapter 4: Exchange Rate, Demand Curve, Baby Food
12 Apr 2015
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Bf/gf, marriage, children: absence makes the heart grow fonder. 3 principles that describe preferences: maximization, substitution, diminishing marginal value. Px x + py y = total expenditure. Real income: income in terms of real goods (amount of consumable goods; not dollars) Econ 103: no unique measure of income, depends on the price level you use. Relative prices: measures prices in terms of the number of other goods one must sacrifice. If py = and px = then: For every one unit of x consumed, you must sacrifice a unit of y. Real income and relative prices: determine behavior, behavior doesn"t depend on nominal prices/income. The budget constraint tells us what you are able to consume. The 3 principles tells us what you are willing to consume. Together they are called the law of demand. Law of demand: most powerful idea in social science.
