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VCU ECON 203 - Consumer Demand

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ECON 203 1nd Edition Lecture 3Outline of Last Lecture I. Vocabularya. Fallacies of economic reasoningb. scarcityII.consumer demanda.total use valueb.marginal use valueOutline of Current Lecture I.consumer demand cont.a.principle of diminishing marginal valueb.first law of demandi.centaris paribus conditionsCurrent LectureI. consumer demand(cont.)a. principle of diminishing marginal value- as consumption increases, additional units generate less value to the consumer than previous unitsex. A runner after a marathon will gulp down a bottle of water. The second bottle, they may dump on their head, the third bottle may wind up unopened in their car.marginal value decreases with quantity.Decision rule- people will consume at a rate where MV is equal to the market price. Looking at the graph, when MV=$2, only 1 unit will be bought. These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Demand curve- the relationship between price and quantity. It’s the sameplot as the MV curve, except the vertical axis has been re-labeled to price instead of MV.If MV ˃ P, buy more. Consumption increases because the goods are worthmore to the consumer than they costIf MV˂ P, buy less. Consumption decreases because the goods cost more than they are worth to the consumer. If MV=P, the cost is equal to the valued costb. First law of Demand- holding other relevant factors constant, as the price of goodX increases, the number of units of the good desired decreases and vice versa. i.e. As Price of X increases, Quantity in demand of X decreases As Price of X decreases, Quantity in demand of X increasesi. Ceteris paribus conditions: relevant factors that affect deman1. Price of other goods( competing brands, complimenting goods, etc)2. Income of consumersa. Normal(superior) goods- when income increases, demand will also increase (shoes, restaurant meals, etc.)b. Inferior goods- when income increases, demand will decrease and vice versa ( ramen noodles, spam, etc.)3. “X-vector”- everything else that may alter the perception of value (weather, information, expectations for future prices,


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VCU ECON 203 - Consumer Demand

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