Reading Notes on the Way of Thinking in Economics: Chapter 3 concept of ubiquitous alternative needs

Most items are scarce, but everything has alternatives. Therefore, in daily life, we need to weigh and make choices. Our choice depends on the situation we face, that is, the marginal situation, to perform marginal analysis.

Marginal benefits or marginal costs are additional benefits and costs. Marginal Analysis assumes that people's decisions are made by comparing the expected additional benefits and the expected additional costs, both benefits and costs are measured at the boundaries of decision makers.

Water and diamond are more valuable. They are different for people in cities and in desert.

Suppose you are desperately preparing for the next day's CPA Examination, and your girlfriend calls at to ask you to compensate her for her chat, your girlfriend repeatedly begged, you said no, so she was very sad. Will it be more important than me? On this particular evening, it is not your girlfriend or your attention that is very important, but that you have been chatting with your girlfriend for two hours and reading books for two hours, which is more worthwhile.

Different needs are different. They relate the number of people who want to get something with the price they have to pay to get it.

The demand curve indicates the quantity that the consumer plans to purchase at any given price.

 

Price per gallon (USD)	Daily water usage (1 million gallons)
0.07	23
0.04	40
0.02	80
0.01	160
0.005	320

 

Consumers have made marginal adjustments to water price changes. When other conditions remain unchanged, the price of the item increases, and the demand decreases. When other conditions remain unchanged, the price of the item falls, and the demand increases.

Note the difference between demand and demand: demand is the relationship between two variables, linking different prices with the number of people willing to buy at different prices. Requirement is the whole curve. Demand changes from one point to another on the curve.

When other conditions change, the demand itself changes, that is, the demand curve changes. If people's purchasing intention changes, even if the price of the item remains unchanged, the overall demand for the item will inevitably change. If people prefer to buy water, for example, when the weather is dry, the demand curve will move up and down. If people are reluctant to buy water, such as water pollution, the demand curve will move down to the left.

 

 

Factors that lead to the movement of demand curves:

• Changes in the number of consumers: an increase in population will lead to an increase in water consumption.
• Changes in consumers' tastes or preferences: some of my colleagues were former hardcore fans of little sweet brani, but now, even if they are given away for free, they may not consider asking for her record.
• Changes in income: changes in income are positively correlated with changes in demand for normal products. A normal product is a product that increases demand as income increases. However, there is another kind of commodity called off-stock products. If the income increases, people's demand for something will decrease. For example, students in the school often eat instant noodles, while finding a job and increasing their incomes, they often eat at restaurants, reducing their demand for instant noodles.
• Changes in the price of a substitute: an increase in the price of an item without changing other conditions will lead to an increase in the demand for the alternative. (Two cameras)
• Changes in the price of a complementary product: when other conditions remain unchanged, the price of a complementary product increases, resulting in a decline in the demand for the complementary product. (Camera and film)
• A change in the expected price of an item: a rise in gasoline is expected to result in a rush of gasoline.

Sometimes inflation will distort our perception of price changes. If people's income doubles the price of everything they use, the relative price will not change.

Demand Price Elasticity refers to the percentage of demand changes divided by the percentage of price changes. If the elasticity coefficient is greater than one and the demand variation is greater than the price variation, the demand is elastic. If the elasticity coefficient is less than one, and the demand variation is less than the price variation, the demand lacks elasticity.

The following factors affect elastic acceptance:

• Time: the longer people adjust the price changes, the more flexible the demand. Because for customers, it takes time to discover and start using alternatives. Producer development and production are required, it also takes time to promote alternatives.
• Availability of known alternatives: the more substitutes, the greater the demand elasticity, the fewer substitutes, and the smaller the demand elasticity.
• Proportion in the budget: if the proportion used for something in the budget is smaller, the consumer's sensitivity to price changes will be lower, and demand will be less elastic, for example, you may not know the price and consumption of salt at all.

If the change in price leads to a reverse change in the total income and price, demand is elastic. If the change in price leads to a change in the same direction between the total income and price, demand must be elastic.

For the entire price range, there is no completely non-elastic things. For a large enough cost change, all buyers will respond. For example, the demand for insulin in people with diabetes does not mean that they will buy it as long as doctors prescribe medicine. When the price of insulin decreases, patients with diabetes are more willing to take the medicine according to the prescription. When the price increases, patients may take the medicine only when they are unwell, when the price rises further, the patient may choose to pray, jump to the gods, or even give up, to reserve assets for the later generation.

All scarce products must be allocated in some way. The main way we use to distribute scarce products is market price and willingness to pay. If you do not use the price, you must establish a certain rule and system to identify those who want to obtain scarce products and decide who should get them. If the rule is "first come, first come, first come", people will spend a lot of time queuing. If people draw lots, they will ignore their aspirations and diversity. If they are evenly distributed, who will separate them?

If the distribution method of a scarce product does not allow the producer to get an appropriate return, this distribution method will crash.