Chapter 5 Demand

# Chapter 5 Demand - Marginal Utility decreases with quantity...

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Chapter 5 - Demand 1. Law of Demand 2. Derive Demand Curve 3. Measure Consumer Benefits Law of Demand As price rises, people do less of it Thus slope usually decreases Even if it is “free” there is an opportunity cost involved Applies to all goods and services consumers want Try to find utility Utility Jeremy Bentham How do we know how much they want a good? We can measure by utils of satisfaction Too hard to measure Money is a proxy for utility What is the max. amount you are willing  and able  to pay? Rational utility maximizes Ex.  Consumption of cans of Pepsi per week Utility increases as consumption  increases Total Utility increases with quantity

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Unformatted text preview: Marginal Utility decreases with quantity The more you have, the less each extra one is valued Marginal Utility = TU . Consumpt ion Pepsi Utility Marginal Utility 10 1 10 5 2 15 4 3 19 3 4 22 2 5 24 1 st degree is positive 2 nd degree is negative Law of Diminishing Marginal Utility At some point, the next item is worth less than the one before Ex. – collector – it doesn’t matter, they are all worth the same Holds true for most How much of each good is consumer going to Q S D \$ Q S 1 D 1 \$ D 2 S 2...
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Chapter 5 Demand - Marginal Utility decreases with quantity...

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