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Chap005.1 - The Law of Demand Demand The Benefit Side of...

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1 Demand: The Benefit Side of The Market Chapter 5: Demand: The Benefit Side of the Market Slide 2 The Law of Demand ± People do less of what they want to do as the cost of doing it rises. ± The benefit of an activity equals the highest price 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. Chapter 5: Demand: The Benefit Side of the Market Slide 3 The Law of Demand ± The Origins of Demand z What determines “tastes” or “preferences”? ² Biology ² Culture ² Peer Influences ± How should we allocate our incomes among available goods and services? Chapter 5: Demand: The Benefit Side of the Market
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