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