lecture 13 - LECTURE 13: HOUSEHOLD-DECISION-MAKING AND...

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2010: LECTURE 13 1 LECTURE 13: HOUSEHOLD-DECISION-MAKING AND SOCIETAL GAINS: Household decision-making: - marginal analysis - budget line. - Law of Diminishing Marginal Benefit. Mankiw: Chapter 7 and pp. 457-459
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2010: LECTURE 13 2 DIFFERENCE BETWEEN MANKIW AND ME Mankiw - each person buys only 1 unit Me - people buy more than 1 unit Mankiw Me Buyer Willingness to pay ($ per unit) John 100 Paul 80 George 70 Ringo 50 John’s Units Benefit of unit (Willingness to pay) ($ per unit) 1st 100 2nd 80 3rd 70 4th 50
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2010: LECTURE 13 3 HOW MUCH DO YOU BUY? Income: 1000 ($ per month) - can buy - entertainment - price 5 ($ per unit) - “other things” - price 1 ($ per unit). How much entertainment do you buy? How do you make the decision? Two things important: - what you can afford. - how much you like.
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4 HOW YOU MAKE DECISIONS: MARGINAL ANALYSIS Point #3: Most decisions can be broken down into marginal decisions. Margin = edge line which separates
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lecture 13 - LECTURE 13: HOUSEHOLD-DECISION-MAKING AND...

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