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DECLINE STAGE: The final stage of the product life cycle, characterized by a drastic drop off in profits. A company needs to decide how long to continue to support a product during this stage. Advertising and promotion can help maintain sales for a period of time. Ultimately, the cost-benefit tradeoff forces the business to discontinue the manufacturing of a product in this stage. Sometimes this happens quite rapidly and in some cases the product continues in this stage for many years.

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Lesson 10: Utility and Demand | Unit 4: On To Demand Page: 14 of 21

Topic: A Generalized Choice <=PAGE BACK | PAGE NEXT=>

  • In many cases buyers are making choices between ONE good and EVERY other good that they could be purchasing.

  • The presumption is that every other good satisfies the rule of consumer equilibrium.

  • The question now becomes: How much beach frolicking do I undertake (or purchase) given that my going marginal utility-price ratio is 3 utils per dollar for other goods?

    1. Employing the rule of consumer equilibrium, I need to equate the marginal utility-price ratio (MU/P) for beach frolicking with the marginal utility-price ratio for other goods.

      MU/P for beach frolicking = MU/P for other goods

    2. Because the marginal utility-price ratio for other goods is 2 utils per dollar, the time I spend at the beach needs generates to generate the same 2 utils per dollar.

    3. If the price per hour at the beach is $2, then I need to stay at the beach until my marginal is 4 utils, a value generated at 5 hours. This gives me a marginal utility-price ratio (MU/P) for beach activity of 2 utils per dollar.

    4. I have satisfied the rule of consumer equilibrium!

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The interest rate charged by the Federal Reserve System (the Fed) for loans to commercial banks, which in principle can be used as a means of a controlling the money supply. An increase in the money supply can be achieved when the Fed lowers the discount rate. A decrease in the money supply can be achieved when the Fed raises the discount rate. The discount rate, which is set by Federal Reserve Banks, subject to approval by the Board of Governors, is used more to signal changes in monetary policy rather than to actually control the money supply. The discount rate is one of the three monetary policy tools that the Fed can use, in principle, to control the money supply. The other two are open market operations and reserve requirements.

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Today, you are likely to spend a great deal of time wandering around the downtown area hoping to buy either a pair of gray heavy duty boot socks or a 50-foot blue garden hose. Be on the lookout for fairy dust that tastes like salt.
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