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ECONOMICS

ECONOMICS. PRESENTATION: CONSUMER’S EQUILIBRIUM PARADOX OF VALUE. CONSUMER’S EQUILIBRIUM. CONSUMER’S EQUILIBRIUM. Consumer’s equilibrium is determined by the condition that marginal use value equals to the price of one good. Consumer’s Equilibrium.

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ECONOMICS

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  1. ECONOMICS PRESENTATION: CONSUMER’S EQUILIBRIUM PARADOX OF VALUE

  2. CONSUMER’S EQUILIBRIUM

  3. CONSUMER’S EQUILIBRIUM Consumer’s equilibrium is determined by the condition that marginal use value equals to the price of one good.

  4. Consumer’s Equilibrium People try to maximize consumer surplus subject to constraints The unit price of good = $8 MUV CONSUMER EQUILIBRIUM MUV = P TUV $10 $8 0 Q 2(Max. quantity)

  5. When constraint changes, behaviour will change!!

  6. Consumer’s Equilibrium (graphic) + = Total Use Value $ Unit price of good = $4 Consumer Surplus Consumer’s Equilibrium (MUV=P) P=$4 Consumer Expenses MUV 0 Q=10

  7. Marginal approach is used when a person decides to buy or not to buy a particular unit of good. 2. Consumer Surplus + Consumer expenses = Total use value (TUV) 3. When MUV > P  Buy When MUV = P  Indifferent(B/NB) When MUV < P  Not buy

  8. PARADOXOF VALUE

  9. Paradox of Value • High use value  low • market exchange value • 2. Low use value  high • market exchange value Price. Of good depends on: 1. its marginal use value 2. its scarcity (or its supply)

  10. Examples (Cotton fabric) P($) • Supply : large Sc - Price : low • Q : large •  TUV large - Market value = Pc x Qc • MUV = price : low • Consumer surplus • = TUV – Pc Qc (large) Pc MUVc 0 Q (Cotton fabric) Qc

  11. Examples (Silk) P($) Ss • Supply : small • Price : high • Q : small •  TUV : small • market value = Ps x Qs Ps • MUV = price : high • consumer surplus • = TUV – Ps Qs (small) MUVs Q (Silk) 0 Qs

  12. Paradox of Value (Conclusion) The exchange value of a good is determined by its relative scarcity and its marginal use value, not total use value.

  13. Member list: • Bernice Au • Irene Chak • Rita Chow • Asma Khan • Winnie Lam • Lilian Lung

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