EC 201 10-1-08 - If marg. <avg., avg. Deeper...

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EC 201 10-1-08 Package failed Monday o Misunderstanding: financial markets have nothing to do with me o But actually we are in a credit crisis o Banks aren’t lending to each other o Hard for small businesses to get credit Mortgage Car loan Business loan o Some Democrats said no: don’t help fat cats o Republicans said no: free-market philosophy o J. M. Keynes 1936- classical: in the long run, it will work out “In the long run we are all dead.” Marginal o Marg. Revenue = extra rev. to firm from selling one extra unit o Marg. Cost= extra cost to firm from producing one extra unit Relationships between marginal, avg. total o Course (Marginal grade) (total grade) Avg. Grade=GPA 1 3.0 3.0 3.0 2 4.0 7.0 3.5 3 3.5 10.5 3.5 4 1.5 12.0 3.0 If marginal > avg. , avg. ↑ If marginal = avg., avg. constant
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Unformatted text preview: If marg. <avg., avg. Deeper look at consumer demand o How do buyers decide how many units to buy? Marginally At each step, you compare marginal benefit with marginal cost What is marg. Benefit of buying and consuming one extra unit? marginal utility We measure MU in $ of willingness to pay MU of one extra unit is max. amt. willing to pay to receive that unit Assume diminishing marginal utility # movies per month marg. Utility (max w.t.p. this movie) total U. (max w.t.p. for all)-1 $15 $15 2 9 24 6 1 37 MU =TU/ Q TU= MU Compare MB (buyer) w. MC(cost) here, MV(value) Assume individual consumer has no control over price Take price as given...
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This note was uploaded on 04/19/2011 for the course EC 201 taught by Professor Ballard during the Fall '08 term at University of Michigan.

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EC 201 10-1-08 - If marg. <avg., avg. Deeper...

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