# eco2 - DEMAND Q"Why do people demand...

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points : chosen consumption w/ each budget constraint D B A worse than A better than A C X 1 X 1 X 1 X 1 . DEMAND <Consumer Behavior> Q: "Why do people demand goods?" Utility Definition: "The satisfaction a consumer derived from the consumption of commodities" *Assumption: Economic people demand goods to increase their utility Q: "How do people decide their demand?" - Why do I demand a car? Cardinal Utility Theory - Strongest Assumption Assumption: The utility is measurable in numbers. The consumer assigns a number of 'utils' to every commodity he/she buys. ex) a whopper: 5 utils a microwave: 100 utils a car: 10,000 utils Consumers can rank commodities, and also can assign number to each commodity * The Law of Diminishing MU - The additional (marginal) utility obtained from consuming an additional unit of the same commodity decreases as more and more units are consumed. # of steaks Total Utility Marginal Utility 0 0 1 30 30 2 50 20 3 65 15 4 75 10 5 80 5 decreasing ex) Ordinal Utility Theory - Weaker assumption Assumption: The consumers are not able to assign #'s to commodities but able to 'rank' commodities in order of preference ex) One can say "I prefer a beer to a coffee." But he cannot recognize how much utils he gets from a beer or a coffee. Today's microecomic theory is based on the Ordinal Utility Theory. ex) Cardinal Ordinal Toyota 50 #2 Honda 60 #1 Nissan 40 #3 GM 35 #4 FORD 30 #5 CHRYSLER 20 #6 Indifference Curve - a useful tool in deriving the demand curve

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Any point on an indifferent curve gives same utility. Properties of Indifference curves
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## This note was uploaded on 04/04/2009 for the course ECON 361 taught by Professor Drabicki during the Spring '07 term at Arizona.

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eco2 - DEMAND Q"Why do people demand...

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