Economics_Ch06

To find the quantity demanded follow the dotted

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Unformatted text preview: Start at a price of \$15. To find the quantity demanded, follow the dotted horizontal line over to the demand curve (D). Then follow the dotted vertical line downward to the horizontal (or quantity) axis (50). In this way, you find that the quantity demanded at \$15 is 50. 06 (128-153) EMC Chap 06 11/21/05 3:13 PM ? Page 133 How Much Would You Pay for an Ocean View? O nce upon a time, a man bought a house. The house was built on a high cliff overlooking the Atlantic Ocean. The man would get up every morning and drink his coffee as he gazed out over the ocean. One day a friend visited the man. The friend asked the man how much he thinks he paid for the ocean view he enjoyed daily. The man said, “I didn’t pay anything for the view. I bought the house. The view was just there.” The friend asked the man if any houses in the neighborhood were similar to his house but without an ocean view. The man said a house right down the street was exactly like his house but without an ocean view. “Was the price of the house down the street the same as the price of your house?” the friend asked. “No,” said the man, “it was \$200,000 cheaper.” “Then that is what you paid for the ocean view,” the friend said. “If the only difference between your house and the house down the street is the ocean view, then the price difference between the houses is the price of the view.” Of course, another way of putting this relationship is to say that the demand for the man’s house was greater than the demand for the house down the street because the man’s house came with an ocean view and the house down the street didn’t. Higher demand for the house with the view means higher price paid for the house with the view. The man knew that his friend was right. All this time he thought that he simply paid more for his house. Instead, he paid the same dollar price for his house as the person down the street paid for the identical house, and then he “purchased” the ocean view for \$200,000. Now ask yourself if there...
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