MB MC Lecture13(2005.10.27 Class today Chapter 5 P 11719只 Chapter 5: Demand: The Benefit Side of the Market Slide 1
MB MC Chapter 5: Demand: The Benefit Side of the Market Slide 1 Lecture 13 (2005.10.27) Class today ◼ Chapter 5 P117-128
emand: The Benefit Side of The MArket ICHAPTER MB MC
MB MC Demand: The Benefit Side of The Market
MB MC Overview Chapter 5 presents the material in a way that illustrates the core principle of the textbook, that marginal benefits should equal marginal costs The chapter presents the demand curve as derived from marginal benefits. Chapter 6 presents the supply curve as derived from marginal costs These two chapters provide the details behind the principle that Mc- MB and give students a solid basis for understanding and applying it in a variety of situations Chapter 5: Demand: The Benefit Side of the Market Slide 3
MB MC Chapter 5: Demand: The Benefit Side of the Market Slide 3 Overview ◼ Chapter 5 presents the material in a way that illustrates the core principle of the textbook, that marginal benefits should equal marginal costs. The chapter presents the demand curve as derived from marginal benefits. Chapter 6 presents the supply curve as derived from marginal costs. These two chapters provide the details behind the principle that MC = MB and give students a solid basis for understanding and applying it in a variety of situations
MB MC Overview Chapter 5 develops the idea of utility maximization and the model of consumer choice behind the demand curve. It presents the Rational Spending Rule and explains how changes in the price of substitutes and income affect demand Chapter 5: Demand: The Benefit Side of the Market Slide 4
MB MC Chapter 5: Demand: The Benefit Side of the Market Slide 4 Overview ◼ Chapter 5 develops the idea of utility maximization and the model of consumer choice behind the demand curve. It presents the Rational Spending Rule and explains how changes in the price of substitutes and income affect demand
The law of demand a People do less of what they want to do as the cost of doing it rises P D Q Chapter 5: Demand: The Benefit Side of the Market Slide 5
MB MC Chapter 5: Demand: The Benefit Side of the Market Slide 5 The Law of Demand ◼ People do less of what they want to do as the cost of doing it rises D P Q
The law of demand a The benefit of an activity equals the highest price we'd be willing to pay to pursue it (i.e, the reservation price) - (The price of a good includes monetary and non onetary costs a As the cost of an activity rises and exceeds the reservation price, less of the activity will be pursued Chapter 5: Demand: The Benefit Side of the Market Slide 6
MB MC Chapter 5: Demand: The Benefit Side of the Market Slide 6 The Law of Demand ◼ The benefit of an activity equals the highest price we’d be willing to pay to pursue it (i.e., the reservation price). ◼ (The price of a good includes monetary and nonmonetary costs ) ◼ As the cost of an activity rises and exceeds the reservation price, less of the activity will be pursued
The law of demand a The Origins of Demand What determines tastes"or preferences"? taste the type of thing that you tend to like preference the thing that you like best in a group of things ◆ Biology ◆ Culture ◆ Peer Influences Chapter 5: Demand: The Benefit Side of the Market Slide 7
MB MC Chapter 5: Demand: The Benefit Side of the Market Slide 7 The Law of Demand ◼ The Origins of Demand ⚫ What determines “tastes” or “preferences”? taste___the type of thing that you tend to like preference___the thing that you like best in a group of things ◆Biology ◆Culture ◆Peer Influences
The law of demand Economic naturalist ● Needs vs. Wants ◆ Why does california experience chronic water shortages? Chapter 5: Demand: The Benefit Side of the Market Slide 8
MB MC Chapter 5: Demand: The Benefit Side of the Market Slide 8 The Law of Demand ◼ Economic Naturalist ⚫ Needs vs. Wants ◆Why does California experience chronic water shortages?
Translating Wants into demand a Measuring Wants: The Concept of Utility and Marginal utility ● Utility(心U The satisfaction people derive from their consumption activities ● Marginal utility(MU) The additional utility gained from consuming an additional unit(monetary unit or time unit) of a good e cost/benefit criterion Chapter 5: Demand: The Benefit Side of the Market Slide 9
MB MC Chapter 5: Demand: The Benefit Side of the Market Slide 9 Translating Wants into Demand ◼ Measuring Wants: The Concept of Utility and Marginal utility ⚫ Utility (U) ◆The satisfaction people derive from their consumption activities ⚫ Marginal utility (MU) ◆The additional utility gained from consuming an additional unit (monetary unit or time unit)of a good ◆cost/benefit criterion
Translating Wants into demand a How should we allocate our incomes among the various goods and services that are available? Utility and utility maximization a Jeremy Bentham and the"utilometer Chapter 5: Demand: The Benefit Side of the Market Slide 10
MB MC Chapter 5: Demand: The Benefit Side of the Market Slide 10 Translating Wants into Demand ◼ How should we allocate our incomes among the various goods and services that are available? Utility and Utility Maximization ◼ Jeremy Bentham and the "utilometer