Demand: The Benefit Side of the Market. Law of Demand. Law of Demand People do less of what they want to do as the cost of doing it rises Recall the Cost-Benefit Principle Pursue an action if and only if its benefits are at least as great as its costs Recall the Reservation Price
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MU/$ = 100/.10 = 1000
MU/$ = 200/.25 = 800
Peanuts yield higher marginal utility per dollar and are therefore a “better deal”. He should consumer more peanuts and less cashews to increase total utility.
Here, CS = $200
What is the optimal quantity to consume, and how much is consumer surplus?
Q* = 4 units (MC =MC) and CS = $120