lecture 14 - LECTURE 14: HOUSEHOLD DECISION-MAKING AND...

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2010: LECTURE 14 1 LECTURE 14: HOUSEHOLD DECISION-MAKING AND SOCIETAL GAINS: POSITIVE: CONSUMER DECISION-MAKING Done - How you make the decision (marginal analysis) In deciding how much to buy, two things are important - what you can afford (budget line) - how much you like (marginal benefit) Now - Pulling it together - making the choice which maximizes well-being NORMATIVE: EVALUATING CONSUMER GAINS - measuring MB curve - it is the demand curve! - how much benefit do consumers get from buying stuff. Mankiw: Chapter 7
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2010: LECTURE 14 2 CHOOSING HOW MUCH TO BUY
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2010: LECTURE 14 3 What you can afford - budget line. How much you like extra units - marginal benefit - diminishing. Choice : people choose to make well-being as big as possible. If buy 1 st unit, gain benefit MB = 55 ($) give up 5 ($) “other things”, give up benefit (cost) 5 ($).
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2010: LECTURE 14 4 Overall, benefit goes up 55-5 = 50 ($). Do it!
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lecture 14 - LECTURE 14: HOUSEHOLD DECISION-MAKING AND...

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