Paradox of Value
What is the name of the philosopher who introduced the paradox?
Adam Smith
How does a rational person make a decision?
A rational decision maker makes a decision if and only if the marginal benefit is greater than the marginal cost.
What unusual feature do Giffen, Veblen, and speculative goods share compared to most goods on a demand curve?
Their demand curves slope upward instead of downward
What happens when the government sets a price ceiling below the market price?
A price ceiling below the market price causes a shortage because demand increases, but suppliers produce less since the price is too low.
what does utility theory suggest?
Utility theory suggests that individuals make choices to maximize their satisfaction or well-being, given their preferences and constraints.
Which two economic concepts are vital in explaining the paradox of value?
Scarcity and marginal utility
What type of demand does salt have? (elastic or inelastic)
Inelastic.
What happens to the demand for a Giffen good when its price increases?
The demand for a Giffen good increases because people cannot afford substitutes and must rely on the good more.
How do you think high taxes on goods like cigarettes affect consumer behavior and the overall market?
High taxes on cigarettes discourage smoking by raising prices, but they can also lead to illegal trade as people try to avoid paying the higher costs.
name the three factors that effect a person’s decision
cognitive biases, emotions and social influences
How does the law of marginal utility apply differently to various types of goods? (Hint: water vs diamonds)
Necessities, such as water, experience a rapid decline in marginal utility since basic needs are easily satisfied. However, the marginal utility of luxuries does not decrease as fast.
Why do people purchase luxury handbags instead of using grocery bags?
Luxury handbags signal wealth and social status, providing psychological satisfaction.
If a person buys Bitcoin even at high prices, expecting its value to increase in the future, what type of good is Bitcoin in this scenario?
A speculative good
How do you think setting a minimum wage impacts workers and firms in the long run?
A minimum wage can benefit some workers by ensuring a higher income, but it might lead to unemployment for others as firms may hire fewer workers to save costs. It could also encourages informal labor market where workers accept jobs below minimum wage.
How do cognitive biases influence economic decision-making?
Cognitive biases are mental shortcuts that can lead individuals to prioritize goods and make choices that don't align with logical utility maximization, such as overvaluing luxury items over necessities like water.
If a good/service is abundant, what will that indicate about its marginal utility?
The marginal utility will be generally low
What are some factors that influence consumer decisions beyond utility?
Incentives, fear of ridicule, social pressure, and psychological satisfaction.
When a luxury car's price goes up and demand increases because buyers see it as more prestigious, what type of good is it?
A Veblen good
What do you think were the long-term effects of rent control in Egypt during Gamal Abdel Nasser’s era?
Rent control led to housing shortages, poor maintenance of rental properties, and reduced investment in the housing sector because landlords had little incentive to maintain or build new properties under fixed low rents.
How do emotions affect individuals' valuation of goods in economics?
Emotions, such as desire, envy, and social aspirations, can override utilitarian value, causing individuals to prioritize luxury items like diamonds over essential goods like water.
-Type of good: Water is a necessity and once thirst is satisfied, people do not need more. However, diamonds are luxurious and having several diamonds symbolizes status and wealth.
-Scarcity: Water is plentiful and can be obtained through various natural sources,
Why do people fear ridicule in their purchasing decisions?
People fear being judged or excluded socially, so they may choose branded or luxury goods to avoid being perceived as "cheap" or of lower status.
Why doesn't the substitution effect apply to Giffen goods when their price increases?
Because substitutes are either unaffordable or more expensive than the Giffen good, making it attractive and hard to replace even after its price rises.
How did the gradual removal of rent control in Egypt impact the housing market, and what were the results ?
The removal of rent control allowed rents to rise, which encouraged investment in new housing projects, especially for wealthier people. However, it caused higher rents for many and a shortage of affordable housing, making it harder for low-income families to find homes.
In what ways do social influences impact individuals' economic choices?
Social factors like cultural norms, advertising, peer influence, and societal expectations shape individuals' preferences and decisions, leading them to prioritize certain goods over others based on external pressures and influences.