Lecture 6

# Lecture 6 - o =CS PS is only true if there aren’t any...

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I. What determines price? a. One arguments states that people should pay as much as they want for a good i. Mona Lisa b. One argument states that people should pay however much it costs to produce the good (with a decent profit) P Supply Demand Q Graph is on paper 1 Question: Is this outcome good? Gains from trade (G.F.T.)= Total value minus total cost (always works). Marginal value curve and marginal cost curve o What’s the benefit of producing the good opposed to the cost of the good? o =TV-PxQ+PxQ-TC o =(TV-TE)+(TR-TC)
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Unformatted text preview: o =CS+PS, is only true if there aren’t any taxes or subsidies • Efficient Point: Maximizes the G.F.T. GO TO GRAPH ON PAGE 2 REMEMBER DIFFERENCE BETWEEN QUANTITY SUPPLIED AND SUPPLY, AND ALSO BETWEEN QUANTITY DEMANDED AND DEMAND WHY DEMAND MIGHT CHANGE! 1. Income Changes: a. For normal goods, if income increases, demand increases, and vice versa b. Inferior goods, if income increases, demand decreases i. THERE ARE RANGES BETWEEN INFERIOR GOODS AND NORMAL GOODS 2....
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