V Needs? Statements of Need Are Always Inaccurate
* I need a new car.
* We need more water in So Cal.
* Everyone needs medical care regardless of income
* Anything worth doing is worth doing well.
V These Statements Ignore Three Facts
* Goods are not free. We must sacrifice something else we care about to get these goods.
* There are substitutes for everything. (Everything?) Insulin? Self actualization?
V Scarcity requires choices
* Expected marginal costs and expected marginal benefits
* The issue of scarce information
V How Much of Something Someone "Needs"
* Almost always related to the sacrifice required to obtain it.
* The relationship is negative
V Demand
* A relationship between the amounts of want fulfillment and the costs of fulfilling those wants.
* The Law of Demand - the relationship is always negative - ceteris paribus
V Exceptions?
* Stocking up before some crisis - price up, quantity up
* Prestige goods
* Insulin to diabetics
* What about relative prices and demand? Does inflation obviate the law of demand?
* Individual demand
* Market demand - the horizontal sum
* l3d_is_h_sum
* Values are subjective
V People value things at the margin
* "You like your Spanish class more than you like me." (Only at the margin.
* The diamond - water paradox
V How about a graph?
* A change in demand
* A change in quantity demanded
* l3ch_in_d_qd
V Time is an issue.
* It takes time for consumers to find and for producers to provide substitutes.
* In the textbooks, the changes are frictionless. In the real world?
V Elasticity of Demand
* A measure of responsiveness
* The amount by which...
V The ratio
* Percent change in...
* If > 1, consumers are responsive
* If < 1, consumers are unresponsive
* If = 1, then ...
* A calculation
V Determinants of elasticity of demand
* Time
* Proportion of one's budget
* The number of good, available substitutes
* Luxury or not?
V Elasticity and total revenue (P x Q)
* If price increases and total revenues increase ...
* If price increases and total revenues decrease ...
V If price changes and total revenues don't change ...
V What about perfectly inelastic demand?
* Elasticities L5
* What about oil? Is there a difference between the long run and short run when it comes to people's responsiveness to a price change? (Time)
V All Scarce Goods Must Be Rationed
V Scarcity and rationing
* Rationing methods
* Fair?
* Behavior and rationing
* Rationing imposes costs - money and others
* If money price is legally forced down then ...
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