gs_-06_--Supply_and_demand_--_1 - ANNOUNCEMENT FIRST...

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Nov. 27, 2009 1 ANNOUNCEMENT: FIRST EXAMINATION ± THE FIRST UNIT EXAM WILL BE ON DECEMBER 11, 2009 (FRIDAY) – TENTATIVE DATE ± EXAMS BEGIN 30 MINUTES EARLIER, FROM 7:30 A.M. AND END AT 9 A.M. ± ROOMS TO BE ANNOUNCED. Lecture #6 : INTRODUCTION TO SUPPLY & DEMAND ± MARKETS ± IMPLICATIONS OF OPTIMIZING BEHAVIOR ± Law of diminishing marginal utility when two or more goods are being consumed. ± Law of diminishing returns when two or more factors are being employed. ± DEMAND ± SUPPLY 2 MARKET : AN INTERACTION OF BUYERS AND SELLERS ± Markets involve the interaction of buyers and sellers. ± Market for goods and services: most common and what we know usually. ± Markets may involve current time periods (mainly goods and services) or present and future time periods (a financial market). ± Hierarchy of markets: Retail, wholesale, etc. 3
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OPTIMIZATION IN CONSUMPTION AND IN PRODUCTION ± OPTIMIZATION. The economic agent tries to get the most out of the available budget. ± CONSUMPTION: The consumer tries to attain the highest level of satisfaction from the given budget from among goods to be consumed and their prices. ± PRODUCTION: The business agent tries to get the lowest cost from the budget given the resources and their prices. LAW OF DIMINISHING MARGINAL UTILITY – CONSUMER CHOICE INVOLVING TWO OR MORE GOODS ± We have explained the law of diminishing MU using only one good. ± Consumer satisfaction follows the law of diminishing MU for all goods. ± Question : But how does a consumer choose the amounts of goods to consume of two (or more goods), given their respective prices in the market? 5 Nov. 27, 2009 6 ANSWER TO QUESTION : OPTIMIZING CONSUMER SATISFACTION IN TWO OR MORE GOODS ± The MU per peso of each consumer good must be equal.
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gs_-06_--Supply_and_demand_--_1 - ANNOUNCEMENT FIRST...

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