Class Summary #27 for 11/4/11

Today's class was filled with a ton of different lessons all relating to supply and demand curves. I am unsure how to draw graphs on blogspot, so I will just post some of the tables we went over in class and the general rules/lesson Prof. Rizzo taught us today.

Rachel's Demand Schedule for Burritos


P                                Quantity Demanded of Burritos


$0                                12
$0.75                           10
$1.50                           8
$2.25                           6
$3.00                           4
$3.75                           2
$4.50                           0

Here are some notes we learned about the above table:

• The prices in the table are complete subjective
• Prices show how much we value 1 burrito at
• In the case of the burrito that "costs" $0, there is still a cost for consuming a burrito that needs to be considered. This explains why the quantity demanded of burritos when it costs $0 is not infinity.
• The prices are signals: when prices are low, the price says you can use burritos for everything. When the price is $0, you might get as many burritos as possible to use as gifts, food for the day, use as a tool, feed pets with it. 
• You have to ask yourself- is the pleasure I get from using a burrito in that way greater than the cost- when price is $0, yes. We are always making these types of tradeoffs in our head.

What Can Be Obtained From This Simple Chart?

1. Marginal values- the graph and chart shows the marginal values to a person of a burrito. It shows the price of burrito plus how much we value the next one at.
2. Total Expenditures- one can calculate this by multiplying: PXQ
3. Total Values- sum of pleasure you get by consuming each burrito. This is the area under the demand curve. To get this, you can take integral or use simple geometry to find total value or add up values from the chart.
4. "Buyers' New Gains"- AKA Consumer Surplus= Total value - total expenditure . This is showing the gain I get from being able to participate in this market.

Why Do We Behave This Way? (i.e. why do demand curves skype down?)

1. Wealth Effects-
1. When prices go up, you are poorer. When you are poorer, on average, you tend to consume less.
2. Substitution Availability-When prices are low for burritos, you are not giving up a lot to get it. So alternative items are not as valuable. When prices increase, it makes other items, or "substitutes", more attractive so as to save wealth on alternative forms of food/items.
3. Diminishing Marginal "Utility"- This is the most important. It refers to each unit you purchase of a good gives you less satisfaction than the previous one.
1. i.e.- the 2nd pizza slice you eat is less satisfying than the first, and so on. Thus, you wouldn't be willing to pay as much for the 2nd pizza as you would the first pizza, and so on.

Prof. Rizzo also briefly touched on the following topics:

• Condition changes alter prices- i.e. when there was a snow storm on East coast last week, food prices went up.
• The Law of Demand does not just include money prices, but also non-money prices. It considers economic prices as well.
• Is making jack-o-lanterns and not finishing all your dinner really taking food away from poor peoples' mouths? We will learn about this later on.
• As burrito prices go up, you will cease to use burritos in ways that are costly to use- in many ways, these are wasteful ways.
• It is vita to prioritize your wants/values- if burrito prices go up, might use something "cheaper" with which to play baseball.