chap5 - Chapter 5 Demand: the benefit side of the market...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Chapter 5 Demand: the benefit side of the market The Law of Demand: People do less of what they want to do as the cost of doing it rises. Intuitive Explanation: The benefit of an activity equals the highest price wed be willing to pay to pursue it (i.e., the reservation price). As the cost of an activity rises and exceeds the reservation price, less of the activity will be pursued. The cost of an activity, good, or service involves not just monetary costs, but nonmonetary costs as well. Example: "Free" ice cream. To celebrate SBs 50 th birthday, the only local ice-cream shop set up a booth on campus and offered free ice cream. Question: Were all people in Stony Brook happy about this? Measuring Wants: the concept of utility Economists use utility to measure the benefit of an activity, that is, the satisfaction /happiness an activity brings us Assumption: People allocate their income to maximize their satisfaction or total utility. That is, people are rational utility maximizer Example: Sarahs Utility from Ice Cream Consumption Cone quantity (cones/hour) Total utility (utils/hour) 1 50 2 90 3 120 4 140 5 150 6 140 How much ice cream should Sarah consume if the ice cream is free ? Sarahs Total Utility from Ice Cream Consumption Cones/hour Utils/hour 1 3 4 5 6 2 150 140 120 90 50...
View Full Document

This note was uploaded on 09/17/2011 for the course ECO 108 taught by Professor Wolman during the Spring '08 term at SUNY Stony Brook.

Page1 / 26

chap5 - Chapter 5 Demand: the benefit side of the market...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online