ln2_buying

ln2_buying - Lecture 2: Buying I. We buy things because...

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1 Lecture 2: Buying I. We buy things because they help us live and make us happy. Economists use a catch- all term, utility, to mean the benefit we get from buying something. II. Most of us "want" or "need" more than we can afford. In economics, we bring "want" and "need" together with what things cost us and talk about "demand". "Demand" shows how much of something we purchase at a given price. Remember, price equals price per unit, like price per gallon of gasoline, or price per hamburger. What economists think almost always happens, is that people buy more of something when its price is lower, and people buy less of something when its price is higher. This is illustrated with a "demand curve". 0 0.5 1 1.5 2 2.5 3 3.5 10 12 15 20 25 30 gallons of gas per week price per gallon ($) Exception: People may buy more at a higher price if think the price will go even higher in the future (houses today?) Can think of the demand curve as a comparison of benefits and costs. At $2 per gallon, Joe buys 20 gallons of gas a week. He doesn't buy 21 gallons because the 21st gallon is worth less to him than $2.00, given what else he could buy with $2.00 (maybe a cheeseburger and fries). So the demand curve shows that the "marginal utility" of an additional unit of something falls the more units you are already using. So for Joe, the marginal utility of the 21st gallon of gasoline is less than the marginal utility of the 16th gallon of gasoline. (Note: marginal utility is just the increase in your utility from buying and consuming another unit of something.)
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2 As another example of "marginal utility", think of your summer break from school. The first day or two you were really excited and enjoyed the days. By the time summer was almost over, you were perhaps bored and ready to go back to school. III. Other factors affect how much of something we buy: 1. Income: people with more income usually purchase more, at any price, than people with less income - if they do, the product is called a "normal good" If people with higher income purchase less than people with lower income, the product is called an "inferior good." Examples might be second hand clothes, fast food, and inexpensive vehicles. Implication for business:
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ln2_buying - Lecture 2: Buying I. We buy things because...

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