Today in class Rizzo started off by showing us how it is impossible to have demand where the price has zero effect on whether you buy it. Demand curves need some slope. The interest and ability in a product defines demand. The price of penacilin before it came out was infinite because It wasn't possible to get before it came out. For healthcare to be inelastic, markets can't provide goods and services. The more that people spend on health care, the less there is for other people. 90% of US medical expenditures are paid for by others. (government and insurance companies). If we all were concerned about our health, we would do everything to be healthy including working out, not drinking, eating healthy, etc.
Something important that Rizzo said today was that THERE IS A SUBSTITUTE FOR EVERYTHING.
We also learned that income elasticity was (% change in QD)/ (% change in income) this tells us how much consumption changes when income changes. This will tell us if the product is a normal good, or an inferior good.
He said that when income elasticity for environmental demand is 2 that when income increases, our will to spend on the environment is more % than our income % goes up.
He then talked about cross price elasticity and that if they are positive than the product is a substitute. If cross price elasticities are negative, than the product is a compliment.
The law of supply is that if you can get more money for something, then your going to get more.
The reason of why people ride planes over buses is that even if the money cost of the two was the same, that the extra time spent on the bus is an opportunity cost.
More people go to grad school during a recession because most companies aren't hiring so grad school seems more appealing since you can get better jobs and better pay with a grad school degree.
Costs are something that consumes resources. you need an action and a person tied to it for it to be a cost. Sacrificed opportunities are a cost. The costs that matter for producers are opportunity costs. Making a mountain bike has a bigger opportunity cost than making a picnic table. The person making the bike are more scarce and more valued. Resources going into the bike has more costs than the table.
Contractors choose techniques that are the cheapest. Women at the Taj Mahal used to cut the grass with shears. They do not do this anymore as technology replaced this technique. The opportunity costs is not the amount of resources that the Taj pays women, but what these women could make somewhere else. It is an ethical aspect of market pricing. Rizzo has more opportunities than an assistant football coach for another job which is why he is paid more. Skilled workers are paid more than unskilled workers only if their skills are valued somewhere else.
Costs and Supply
Quantity supplied vs. law of supply
When producers make a bike, their thinking of marginal opportunity costs of production. Supply is the amount of a good that firms are willing and able to produce at a certain price. The law of supply is when the price of a good rises if demand stays the same, sellers make more. Anything other than price that makes you change production is what shifts a supply curve.
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