Economic way of thinking

EWOT
Chap 3 Substitutes everywhere: the concept of demand

Most goods are scarce, and there are substitutes for anything. Everyday choices entail trade offs.
Scarce goods can be obtained only by sacrificing other goods. Economizing is the process of making trade-offs among scarce goods by comparing the expected additional benefits and the expected additional costs from alternative ways ofpursuing one´s objective.

MARGINAL VALUE
Our choices depend upon the situations we face. Just about anything could be more valuable than anything else under appropriate circumstances because like our choices, value depends upon situation. The values that matter are marginal values. A marginal (“on or at the edge”) cost or benefit is an additional benefit or cost.
Economic theory ismarginal analysis because it assumes that people make decision by weighing expected additional benefits against expected additional costs, all measured from the frontier on wich de decision maker currently stands. Nothing matters in economic decision-making except marginal benefits and marginal costs.
The economic way of thinking rejects the all or nothing approach in favor of attention to marginalbenefits and marginal cots.

THE DAMAND CURVE
People do have needs. But, in a world of scarcity individuals incur trade-offs choosing less of one good for more another.
Demand relates the amount people want to obtain to the sacrifices they must make to obtain these amounts.
The demand curve is a downward-sloping curve; it illustrates the amount of a good that consumers plan to purchase atany given price. We read a demand curve by taking some specific price and finding the corresponding point on the horizontal axis. That quantity represents the amount that people would plan to purchase. The quantity demanded is the amount that consumers plan to purchase at a given price.

THE LAW OF DEMAND
It applies to all scarce goods if the price of a good increases ceteris paribus, thequantity demanded will decrease. Likewise, if the price of a good decreases, the quantity demanded will increase. Price and the amount demanded move in opposite directions.
It asserts that people economize.

DEMAND AND QUANTITY DEMANDED
Different. Demand is a relationship between two specific variables, price and the amount people want to purchase. But the demand can´t be stated simply asan amount. Demand is a schedule, a curve.

DEMANS ITSELF A CAN CHANGE
Price is an important influence on our choices. But there are other influences that encourage people to increase or decrease their consumption of goods and services. If people´s willingness to buy changes even though the price of the good in question remains constant, the overall demand for that good must have changed.EVERYTHING DEPENDS UPON EVERYTHING ELSE
Influences that can cause a change in the demand for a good:
1. A change in the number of consumers (demanders)
2. A change un consumer´s preferences and tastes
3. A change in income: are positively related to changes in demand for a normal good. An inferior good is a good that consumers demand less when their income rises; likewise, they demand morewhen the income falls. Value is in the eyes of the chooser. What is an inferior good in the eyes of someone might in fact be a normal good for another. This is not necessarily tied to quality. Economists distinguish normal from inferior goods by the way consumers respond to changes in income. The price of any single good has meaning only when considered against the prices of the vast array ofother goods and services that a chooser considers.
4. A change in the price of a substitute good.
5. A change in the price of a complementary good: “goods that go together” like hot dogs and buns. Ceteris paribus, a rise or fall in the price of a given good will tend to decrease or increase the demand for a complementary good.
6. A change in the expected price of a good.

MISPERCEPTIONS...