Demand: The Benefit Side of the Market
The Law of Demand
Other things remaining equal, people will purchase a smaller
quantity of any good or service they want as the price of purchasing
one more unit of it increases.
The Concept of Utility represents the satisfaction or pleasure that people
drive from their consumption activities.
Utility (Полезность) Maximization people try to allocate their incomes so
as to maximize their satisfaction.
Utility measured in a util or one unit of pleasure.
For most goods, utility rises at a diminishing (убывание) rate with
Marginal utility denotes the amount by which total utility changes when
consumption changes by one unit.
Law of Diminishing Marginal Utility
As consumption of good increases beyond some point, the additional
utility gained from and additional unit of the good tends to decline.
If I have one red Chevrolet I’m happier than with none, however, with 2
Chevrolets I will be happier, but not twice happier.
Budget constraintspending limits ELLINA ABDUZHABAROVA
Optional combination is the affordable combination that delivers
maximum total utility.
The Rational Spending Rule
To maximize utility yielded(bring) by a fixed income, spending must be allocated across goods
so that the marginal utility per dollar is the same for each good.
Marginal utility per
dollar spent on cones
MUsmarginal utility( utils/sundae)
Pcprice of comes
Psprice of sundae
In order to maximize utility, the ratio of marginal utility to price must be the
same for each good the consumers buys.
Demand depends on income and prices of other goods.
Demand for a commodity (товар) is determined by the ability and their
willingness of potential consumers to pay.
Demand for specific goods in economy may change, not just because of
changes in average income but also because of changes in the way income is
distributed among the people.
Income effect is the change in quantity demanded of a good that occurs
because a change in the price of the good changes the real income of the
Substitute effect when real income is held constant, the change in quantity
demanded of a good whose relative price has changed
Real price is value in terms of some other good or service.
Nominal price is the price of a good is its value in terms of money
Horizontal addition the process of adding individual demand curves to get
the market demand curve. We add quantities that are measure on horizontal
axes of individual demand curves.
The relationship between the demand and the price can be expressed as the
graph, table or a straight line
Total revenue depends on price and quantity that are