Adrian Monk is an OCD detective who spends all of his income on Monkey Grease, a powerful all-purpose cleaner, and hand wipes. What will happen to the amount Adrian will buy if the price of Monkey Grease increases? Adrian will buy less of the detergent.
When the price is P1, Adrian purchases Q1 and receives a marginal benefit equal to point 1. If the price increases to P2, Adrian will NOT consume Q1 because the marginal cost is greater than the marginal benefit. Adrian will equal benefits with costs at point 2 and reduce is consumption from Q1 to Q2.
Moving to this new equilibrium is what economics predicts. That is, a consumer will seek to maximize his pleasure and avoid pain. This point occurs at point 2 where MB = MC.
In microeconomics, the questions that economists ponder change, but the answer is always “where marginal benefit equals marginal cost.”
When the price is P1, Adrian purchases Q1 and receives a marginal benefit equal to point 1. If the price increases to P2, Adrian will NOT consume Q1 because the marginal cost is greater than the marginal benefit. Adrian will equal benefits with costs at point 2 and reduce is consumption from Q1 to Q2.
Moving to this new equilibrium is what economics predicts. That is, a consumer will seek to maximize his pleasure and avoid pain. This point occurs at point 2 where MB = MC.
In microeconomics, the questions that economists ponder change, but the answer is always “where marginal benefit equals marginal cost.”
Microeconomics is like a donkey because He-Haw, He-Haw, He always equates where marginal benefit equals marginal cost.
No comments:
Post a Comment