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Notes - Chapter 5 - I Demand The Benefit Side of the Market...

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I. Demand: The Benefit Side of the Market 1. Rationing Mechanism – The way that scarce goods and services are rationed 1. Who gets what? 2. Only those willing and able to pay for a good or service will get it 1. Pay with Time, Money, etc. 2. Concept of Demand is more general 1. It is the relationship between the Qd of a good or service and all costs associated with acquiring the good 3. Law of Demand – People do less of what they want to do, as the cost of doing so increases 1. Comes directly from the cost-benefit principle 1. “An action should be pursued if and only if the benefits outweigh the costs” 2. We measure the benefit by the highest price we would be willing to pay for a good or service (Buyer's Reservation Price) 4. Origins of Demand - 1. What determines demand? --> Benefits --> Where do benefits come from? 1. Wants --> Where do wants come from? 1. Biology – e.g. Water when you are thirsty 2. Culture – e.g. Food, entertainment, etc.
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