Consumer Theory Pt 2

Consumer Theory Pt 2 - change in price? a. The availability...

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Consumer Theory Pt. 2 1. Inflation A. The law of demand says that the marginal value of any good falls as the quantity of this good increases relative to other goods. a. This law applies to money B. When the gov’t prints new money in greater amounts than the increase in the amount of other goods available, the inevitable consequences is a decrease in the marginal value of money, or, equivalently, an increase in the price of goods in terms of money. a. This is the fundamental reason for inflation. 2. Individual responsiveness A. The price-elasticity of demand measures the responsiveness in quantity demanded to changes in price. a. An individual who is more (less) responsive to a given change in price is said to be more (less) elastic. b. Price elasticity of demand= percent change in quantity of x/percent change in price of x B. What determines the responsiveness of an individual’s choice of quantity demanded to a
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Unformatted text preview: change in price? a. The availability of close substitutes b. The fraction of income spent on the good c. The unit of time a. With the passage of time, the response to a given change in price becomes absolutely greater. (This is sometimes referred to as the 2 nd law of demand) 3. Demand determinants a. Inferior goods. A good for which demand decreases as income increases. b. Substitutes: two goods for which the demand of one good increases as the price of the other good increases. c. Complements: two goods for which the demand of one good increases as the price of the other good decreases. 4. Shipping the good apples out a. The theorem is so named due to the empirical observation that supermarkets in apple-importing areas have a higher proportion of high quality apples than supermarkets in apple-growing areas....
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This note was uploaded on 04/05/2008 for the course ECON 201 taught by Professor Wadell during the Winter '08 term at Oregon.

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Consumer Theory Pt 2 - change in price? a. The availability...

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