Demand
Two things that seems to rebuff the law of demand:
(1)After a natural disaster, prices rise but people buy more
(2)Some people buy cool cars because they are expensive.
Rachael demand schedule for burritos
Price Quantity
$ 0 12
0.75 10
1.5 8
2.25 6
3 4
3.75 2
4.5 0
What does the chart tell us?
(1) Values are subjective
Price= trade off (opportunity cost)
To buy a burrito, I have to consider what I could do with the money for the burrito.
(2) When something is free, I don't consume infinitely.
There are still costs to consume burritos when they are free.
(3) When prices are too high, I will quit (I am either unwilling or unable to buy the staff.)
When the prices are low, we can use burrito for everything but when prices are high, we have to weigh whether certain use (like feed it to a dog) is worth the price.
(4) Because of price, you have to care about others. When the prices are low, it means that not many people value this product highly or want it very much, and thus you can buy it at a low price; on the other hand, if a certain staff is very popular and attracts many people, the price may be too high for you to afford, so you will quit the trade and leave the product to others who desire more than you want.
In economics, price is the given. Independent variable (the domain) is the price (Y-axis)
Why do we purchase less when the goods are expensive?
(1) wealth effects
price rises----we are poorer----we consume less
Income $50
Corn $1 Nominal income $50 vs Real income (purchasing power)
other things constant 50 corns
When corn price rises to $2, my purchasing power decrease and if I maintain to have the same amount of corn as before, I can have less money to purchase other things and I will be poorer.
(2) Substitution availability
When a product's price is low, U don't have to give up many things you could have bought to get it. But when its price rises, substitution may be more attractive to you.
(3) Diminishing marginal utility
Each unit that you purchase of a good gives you less satisfaction than the previous one.
What does the demand curve tell us?
(1) A plot to your marginal values
When I buy a burrito at $3, I value it greater or equal to $3
(2) It tells you total expenditure
Price * Quantity
(3) Total values (solution to the water-diamond paradox)
(max price + buying price)*quantity/2
(4)Consumer surplus
Total value - expenditure
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