What is Best?

How do we determine Price(BEST)?

Satisfaction experienced using a product or service. Utility Satisfaction experienced using a product or service.   

You mean, the more I buy the happier I’ll be?!?!   Not Exactly!

Quantity Marginal Utility Total Utility 1 2 3 5 6 7 8

Diminishing Marginal Utility The marginal benefit from using each additional unit of a good or service during a given time period tends to decline as each is used.

Demand Desire + Ability = Demand $$Price$$ Quantity Demanded

Law of… Demand As prices people will buy drop more. As prices people will buy rise less.

Demand Curve

Why does Demand work this way? 1) Income Effect: Change in the amount you will buy because of the purchase power of your income. 2) Substitution Effect: Change to the amount purchased because you can buy something similar but different.

What’s the difference?

Goods that consumers demand less of as their incomes rise. Inferior Goods: Goods that consumers demand more as their incomes rise. Normal Goods:

Goods or Services that can be used in place of others. Substitutes: When the use of one product increase the use of another. Complements:

Change in Quantity Demanded A movement along a given demand curve caused by a change in demand price. The only factor that can cause a change in quantity demanded is price.

Change in Demand A shift of the demand curve caused by a change in one of the factors of demand. A change in demand is caused by any factor affecting demand EXCEPT price.

Supply Willingness + Ability = Supply $$Price$$ Quantity Supplied 700 3500 600 3000 500 2000 300 1500 200 100

Producers are willing to sell… Law of… Supply Producers are willing to sell… for a price and for a price. More Higher Less Lower

Supply Curve