chap 3

# chap 3 - CHAPTER 3 Demand Learning objectives 1 Understand...

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9/6/2010 1 CHAPTER 3 Demand Learning objectives ± 1. Understand the three assumptions underlying consumer choice ± 2. Understand the relationship between decreasing marginal value and individual demand ± 3. State the law of demand and know the distinction between a change in demand and a change in quantity demanded . ± 4. Arrive at a market demand curve and know the factors that lead to changes in demand

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9/6/2010 2 Demand ± Demand = quantity of a good a consumer is willing and able to purchase at various prices Law of demand ± Law of demand = quantity demanded (Q d ) and price (P) are inversely related
9/6/2010 3 Three axioms (assumptions) of consumer choice ± 1. Substitutability ± All goods have value and goods with the same value can be substituted Marginal value (MV) = maximum amount you’d give up to get 1 more unit of a good Three axioms of consumer choice, continued 2. Declining marginal value ± ex.) market for Girl Scout cookies QM V 1 \$11 2\$ 9 3\$ 7 4\$ 5 5\$ 3

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9/6/2010 4 Paradox of value ± Which is more valuable . . .water or
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chap 3 - CHAPTER 3 Demand Learning objectives 1 Understand...

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