Class summary 11/4

Law of demand

People buy more at higher price after natural disaster

People buy cool cars only because they are expensive( BMW M6)

Racheal demand schedule for burritos

Price                            Quantity

$ 0 12

$ 0.75 10

$ 1.50 8

$ 2.25 6

$ 3.00 4

$ 3.75 2

$ 4.50 0

When you purchase the good, you should think of what you could’ve done if you do not buy this

When something is free, you do not consume it infinity

When the price goes too high, the demand quantity goes to 0, it remands us that the resources are scarce

When the price is low, it means that people value this product lowly, so you can buy it at a low price. When the price is too high for you to afford, you will quit the trade and leave it to others who want it more than you do

Demand curve (price vs quantity)

Why do we purchase less than the goods are expensive?

1.     Wealth effects---when the price of a thing goes up, if you keep consuming the same amount, which means you have to pay more money than before, and you can only spend less money on other stuff, that makes you poorer

2.     Substitution availability---when a product’s price is higher than before, you can find another thing to substitute.

3.     Diminishing marginal utility---each unit that you purchase a good gives you less satisfaction than the previous one.

The demand curve tells us:

1.     marginal values

2.     total expenditure

3.     total values ( solution to the water-diamond paradox)

4.     consumer surplus