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Transcript
20070722_ME_notes
First part: Demand Analysis
20 Demand Theory and Consumer Choice from Google
Chapter 3, page 74
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Refer to PowerPoint file
The goal of firm is to maximize NPV=

n
CFt
NPV＝-I＋∑
；折現率（資金成本）
t =1 （1+ r）
NPV＞0，則接受該投資計畫，NPV＜0 則拒絕該投資計畫。

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Max π=TR(Q)- TC(Q)
Demand Consumer for Max U (x1+…+xn), Utility function, it is for
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evaluation of satisfaction, in certain budge constraint.
(See the 講義 p12) Utility maximization, P1x1+…+Pnxn< m,
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m=income or budge. FOC: first order condition,
Some food, for Q(n), total utility and marginal utility, sometimes
when the marginal utility is decreasing, it does always mean that total
utility is decreasing. 總效用(total Utility) 消費某些數量的物品所能

1. 消費能力：以預算限制式來表示。
PX X  PY Y  I
2. 消費所獲滿足程度：以總效用表示。
ＴＵ＝ｆ（Ｘ，Ｙ）

MU N
MU 1
MU 2

 
P1
P2
PN

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I. Satisfaction received and limited budgets determine consumer demand.
II. Utility analysis
A. Law of diminishing marginal utility
1. Utility measures the want-satisfying power of a good or service.
2. Marginal utility is the additional or incremental satisfaction (utility) a consumer
3. Law of diminishing marginal utility: Consuming more of a product within a
given period will at some point result in diminishing marginal utility.
a. Disutility results when total satisfaction decreases with the consumption
b. A person can eat only so many hot dogs before they get sick.
c. A potato chip company had an ad that said "I bet you can't eat one." The
idea was that utility went up and you had to eat more than one chip.
d. A util is a fictitious measure of satisfaction. Two utils have twice the
satisfaction of one util.
Number Total Marginal
Purchased Utility Utility
0
0
0
1
4
4
2
7
3
3
8
1
4
8
0
5
7
-1
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Uncertainty (無敵卡) appears in the same time with predicted value.
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Sooner or later.

Utility maximization condition (Utility maximizing rule)
1. When spending a limited amount of money, consumers try to equate the marginal
utility per dollar for the items being purchased.
2. Given a budget of \$15.00, use utility maximizing theory to calculate how many of the
following three products would be purchased assuming utility is to be maximized and all
the money is to be spent.
Law of Demand:
 Inverse relationship between P and Q
The law of demand states that, if all other factors remain equal, the higher the price of a good, the less
people will demand that good. In other words, the higher the price, the lower the quantity demanded. The
amount of a good that buyers purchase at a higher price is less because as the price of a good goes up,
so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product
that will force them to forgo the consumption of something else they value more. The chart below shows
that the curve is a downward slope.
A, B and C are points on the demand curve. Each point on the curve reflects a direct correlation between
quantity demanded (Q) and price (P). So, at point A, the quantity demanded will be Q1 and the price will
be P1, and so on. The demand relationship curve illustrates the negative relationship between price and
quantity demanded. The higher the price of a good the lower the quantity demanded (A), and the lower
the price, the more the good will be in demand (C).
Substitution effect and Income effect
The Substitution Effect
As the price of goods increases, people are likely to purchase other products instead.
Substitutes are goods or services that are similar. For example Pepsi Cola and
Coca-Cola are substitutes. As the price of Coca-Cola rises people stop buying Coke
and buy Pepsi instead. Together these two effects account for the downward slope of
the demand curve. But, they can also explain exceptions to the Law of Demand such
as Giffen Goods.
The Income Effect
As the price of a good or service increases, the money a person has left over is
reduced. This is the same as saying that real incomes fall as prices rise. For example,
assume someone has a fixed income of 120 dollars a week. If the price of a bottle of
wine is 10 dollars they can buy 12 bottles. If the price doubles to 20 dollars now
they can only afford 6 bottles. If the price were 30 dollars, only 4 bottles could be
bought. So as the price of wine increases, the ability to afford them falls. Notice that
income in the example is fixed, it does not change. In examinations students
frequently state that the income effect means that; as income increases so does the
quantity demanded. This is wrong.
Second part
Self-introduction
Bypass due to privacy reason.
Reports for 960722:
10 terms
Case page 73~78
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