ECON 2000 Chapter : Chapter 5 Outline
Document Summary
Students often believe the following statements are true. The correct answer is explained after the incorrect statement is presented: the law of demand and the law of diminishing marginal utility are the same. Demand refers to both preferences and ability to pay: the person for whom a good or service has the greatest utility has the greatest desire for more of it. Utilities of one good for many people cannot be compared. Utilities of various goods for one person can be compared. Marginal utility with respect to price, not total utility, is the best indicator of how to make a choice: an expected price change has the same effect as a change in the current price. If prices are expected to rise in the near future, people will demand more of the commodity today in order to beat the rise in price. Demand increases and the quantity demanded will rise.