Demand schedule = plan
Rachel’s Demand Schedule of Burritos.
Price. $$$ Quantity
of Burritos
0 12
0.75 10
1.50 8
2.25 6
3 4
3.75 2
4.50 0
Quantity demanded and values are subjective – different for
all people and different under circumstances.
When price is low - the tradeoffs for the use of that good is low.
When price is high - the tradeoffs for the use of that good is high.
(i.e. burrito baseball.)
There’s no right way to consume things. When prices increase – you
give up uses of a burrito that are least pleasurable first.
Demand Curves
Show relationships of demand schedule.
Price is independent variable - on y-axis.
People buy less because when prices increase, you are poorer, and you consume less.
Wealth effects
ex. oil prices increase and widens range of substitutes available - look for them and consume less.
ex. my income is $50 (corn is $1). My income is 50 corn so if corn price doubles, my income is halved. If I spend $10 on corn and $40 on other things, then I have less to spend on other things. Also if corn price increases I will look for substitutes. I buy less corn.
Demand Curve
- marginal values ($3 = 4 burritos) - The price of the 4th burrito is $3.
- total expenditures ($3 x 4 burritos = $12 spent)
- total values - area under curve = $14.25
- buyer's net gains = consumer surplus $14.25 - total expenditures $12.00 = $2.25 buyer's net gain
- total value = $14.25 vs marginal value = $3
We behave this way - demand curve slopes down because 1. wealth effects, 2. substitution availability, 3. **diminishing marginal utility**
Diminishing marginal utility = each unit you purchase as a good gives less satisfaction than the previous good (pizza example). Even when price is low, I am not willing as much to pay for more.
Wealth effects
ex. oil prices increase and widens range of substitutes available - look for them and consume less.
ex. my income is $50 (corn is $1). My income is 50 corn so if corn price doubles, my income is halved. If I spend $10 on corn and $40 on other things, then I have less to spend on other things. Also if corn price increases I will look for substitutes. I buy less corn.
Demand Curve
- marginal values ($3 = 4 burritos) - The price of the 4th burrito is $3.
- total expenditures ($3 x 4 burritos = $12 spent)
- total values - area under curve = $14.25
- buyer's net gains = consumer surplus $14.25 - total expenditures $12.00 = $2.25 buyer's net gain
- total value = $14.25 vs marginal value = $3
We behave this way - demand curve slopes down because 1. wealth effects, 2. substitution availability, 3. **diminishing marginal utility**
Diminishing marginal utility = each unit you purchase as a good gives less satisfaction than the previous good (pizza example). Even when price is low, I am not willing as much to pay for more.
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