9th lecture

9th lecture - Economics 101 Lecture 9 The Law of Demand:...

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Economics 101 Lecture 9
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The Law of Demand: People do less of what they want to do as the cost of doing it rises.
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The cost of an activity, good, or service involves not just monetary costs, but nonmonetary costs as well.
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Example 9.1. "Free" Häägen-Däs ice cream. To help celebrate the re-opening of Beebe Lake, the local Häägen-Däs supplier set up a booth next to the lake and offered free ice cream.
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Who was pleased about this offer? Who was displeased?
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"Needs" vs. "Wants“ "Californians don't have nearly as much water as they need." vs. "Californians don't have nearly as much water as they want when the price of water is very low."
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Rice farming in the Sacramento valley
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Lush landscaping in San Diego
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vs. desert landscaping in Santa Fe
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The Rational Utility Maximizer Pepsi Consumption (cans/wk) Utility from Pepsi consumption (utils/ wk) 0 0 1 10 2 15 3 19 4 22 5 24 6 25 1. Utility increases with consumption 2. Beyond some point, the additional utility from extra consumption declines.
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Definition . The marginal utility from consuming a good is the additional utility that results from consuming an additional unit of the good. Definition. The law of diminishing marginal utility says that as consumption of a good increases beyond some point, the additional utility that results from an additional unit of the good declines.
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Consumption (cans/wk) Utility (utils/wk) Marginal Utility (utils/can) 0 0 1 2 3 4 5 10 15 19 22 24 10 5 4 3 2 6 25 1
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Exceptions to the law of diminishing marginal utility: The unfamiliar food or melody.
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Definition : The optimal combination of goods is that combination that yields the highest total utility among all the affordable combinations.
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Example 9.2. How many ostrich burgers should Tom consume each week and how many mango milkshakes? Tom derives all of his nourishment from only
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9th lecture - Economics 101 Lecture 9 The Law of Demand:...

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