Econ 101 Winter 2010 Lecture 6

# Econ 101 Winter 2010 Lecture 6 - Economics 101...

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Click to edit Master subtitle style Lecture 1 Economics 101 Microeconomics University of Michigan Winter 2010 Lecture 6

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Lecture 1 22 Announcements n Today’s reading: n Chapter 3, p 66 – 74, Chapter 4, p 98 – 101 (Demand Decisions) n Office Hours: n Monday: 12 – 2 n Tuesday: 10 – 1 n Wednesday: 12 – 2 n Thursday: 11 – 2 n Or call (734) 358 1590 for an appointment n No quiz in discussion section this week n Problem set 3 available on CTools
Lecture 1 33 Efficient Allocation of Goods A cake is to be allocated to one person from a group of five Consumer Harry Indigo Jasmin e Ken Lucy Valuation (\$) 40 36 50 36 27 n Who should get the cake? n How is the cake most efficiently allocated ?

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Lecture 1 44 Efficient Allocation of Goods Suppose we give the cake to Harry. Consumer Harry Indigo Jasmin e Ken Lucy Valuation (\$) 40 36 50 36 27 If Jasmine gives Harry \$45 and Harry gives Jasmine the cake, both are better off n There exists a way to reallocate resources that makes some people better off and makes nobody worse off
Lecture 1 55 A good is most efficiently allocated to the consumer with the highest valuation n i.e. Allocate the single cake to Jasmine, whose valuation of the cake is highest n What if there were two cakes? Or three cakes? n Allocating each marginal cake to the consumer who places the highest valuation on that cake is efficient Efficient Allocation of Goods Consumer Harry Indigo Jasmine Ken Lucy Valuation (\$) 40 36 50 36 27

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Lecture 1 66 Efficient Allocation of Goods Q (no. of cakes) Value 1 2 3 4 5 27 36 40 50 Consumer Harry Indigo Jasmine Ken Lucy Valuation (\$) 40 36 50 36 27
Lecture 1 77 Marginal Valuation and Demand Q (no. of cakes) 1 2 3 4 5 27 36 40 50 Demand

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