Econ 200 Reading1.3 Demand and SupplyTheory of Demand: The choices individuals make with regard to the goods and services they consume directly for their enjoyment. Theory of Supply: the choices we make with regard to the goods that we produced for production. Demand: Can be split up into two parts. - Constraintso All the things that impinge on our behavior and which can be measured.o Ex: Income, price of good, time, technology, laws, health etc.- Tasteo UnmeasurableDemand Curve: This curve is a negative slope, which shows the amount of good consumers, wish to purchase at specified prices. The higher the price, the lower the amount the consumer wishes to purchases. This is known as the Law of Demand.Supply Curve: This curve is a positive slope. It shows the relationship between the price of a good and the willingness of an individual to offer the good for sale. The higher the price, the higher quantities offered for sale. Putting Them Together: - We use demand and supply curves to depict the activities of buying and selling in the market. - When the two curves, are place on top of each other, they intersect at point E (Price E).- At this price, the quantity of good that consumers wish to buy equals the amount suppliers want to sell. - This is called market equilibrium.Chapter 2: The Theory of Consumer Behavior2,1- All the postulates of behavior are all about individual preferences, not group. - Economics in general are usually about group actions not just individuals.- It is impossible to accurately describe the preference of a group so that is why the postulates are individual based.2.2Postulate 1: People Have Preferences- People exercise taste or preferences about the things they choose.- If given 2 options, an individual will either choose one of the two, or is indifferent. - People rank various alternatives.- People rank by ordinal numbers (first, second, third) or cardinal numbers (one, two, three)Postulate 2: More is Preferred to Less- The items must be desirable, aka a good.- The postulate refers to greater access to goodsPostulate 3: People Are Willing to Substitute One Good for Another-Fundamental aspect of behavior-People are willing to make trade offs-Many people trade safety for other goods.-Marriage is one of the most important trade offs.The Meaning of Value- The willingness of individuals to trade off one good for another is a fundamental observation of economics- We measure value by what we are willing to give up inorder to obtain something Measuring the Value of Life- The higher risk of death for a job, the higher the salary.- The numerical value of life one might derive is not an ethical judgment- It is rather an observation from the marketplace based on human behaviorMarginal vs. Total Values- Marginal Value: the amount of other goods we would be willing to give up in order to obtain an incremental amount of a specific good.- Total Value: the amount of good we would be willing to give up to have all of a specific good rather than none at all- Ex: The marginal value of a hamburger is the amount somebody is willing to pay to obtain another hamburger. The total value of hamburgers is the amount somebody is willing to pay have all of his or her hamburger rather than none at all.- The value of something we desire is measured by the maximum amount of other goods we are willing to give up.Postulate 4: For all individuals and all goods, the marginal value of goods decreases, as more of the good is consumed, holding other things