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8. Suppose you are a rational consumer who makes purchases by maximizing marginal utility. One day you hear that the price on a good you purchase (e.g., milk), falls by 30%. The Law of Demand says you should buy more of it. Using only the assumption that you maximize marginal utility, prove the Law of Demand as best you can.
8. Suppose you are a rational consumer who makes purchases by maximizing marginal utility. One day you hear that the price on a good you purchase (e.g., milk), falls by 30%. The Law of Demand says you should buy more of it. Using only the assumption that you maximize marginal utility, prove the Law of Demand as best you can.
'''Proof of the law of demand (If the price of ‘a’ decreases then the demand for ‘a’ increases) is found through the law of equiproportion marginal benefit (MUa/Pa=MUb/Pb=MUc/Pc). When the price of good ‘a’ decreases (Pa decreases) the Marginal Utility of good ‘a’ (MUa) must also decrease to keep MUa/Pa equal to MUb/Pb and MUc/Pc. To decrease the marginal utility of good ‘a’ you (and all other rational consumers) buy more of it, and this increases the demand for good ‘a’. Therefore if the price of good ‘a’ decreases the demand for good ‘a’ increases.''' (thanks to Tim S. for that answer)
'''Proof of the law of demand (If the price of ‘a’ decreases then the demand for ‘a’ increases) is found through the law of equiproportional marginal benefit (MUa/Pa=MUb/Pb=MUc/Pc). When the price of good ‘a’ decreases (Pa decreases) the Marginal Utility of good ‘a’ (MUa) must also decrease to keep MUa/Pa equal to MUb/Pb and MUc/Pc. To decrease the marginal utility of good ‘a’ you (and all other rational consumers) buy more of it, and this increases the demand for good ‘a’. Therefore if the price of good ‘a’ decreases the demand for good ‘a’ increases.''' (thanks to Tim S. for that answer)
9. Suppose a friend of yours announced that when he has a choice between a cheaper good made in China and a more expensive good made here, he will buy the latter based on his opposition to communism. Is he being irrational?
9. Suppose a friend of yours announced that when he has a choice between a cheaper good made in China and a more expensive good made here, he will buy the latter based on his opposition to communism. Is he being irrational?