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RATIONAL IGNORANCE: The decision not to become informed about something because the cost of doing it is more than the expected benefit. In that information is costly, there's always some limit to how much anyone can know. The idea of rational ignorance, while popping up on a daily basis for most of us, is quite important come election time. Many voters decided, logically so, that it's not really worth their efforts to get ALL of the details on every candidate and issue on the ballot.

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Lesson 9: Consumer Demand | Unit 1: Demand Theory Page: 5 of 22

Topic: Unit Review <=PAGE BACK | PAGE NEXT=>

In this unit, you should have learned about:
  • Consumer demand theory as the analysis of decisions involving the purchase of goods.
  • How understanding a decision like spending the day at the beach provides insight into market demand.
  • Utility as the satisfaction of wants and needs and the role it plays in understanding demand.
  • Why utility is not synonymous with the term useful.
  • The inability to measure and compare utility.
  • Utility as the willingness aspect of demand, and income as the ability aspect.

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GAINS FROM TRADE

The combination of consumer surplus and producer surplus obtained by buyers and sellers when engaging in a market exchange. Gains from trade arise because buyers are typically willing and able to pay a higher price to purchase a good than what they end up paying and because sellers are typically willing and able to accept a lower price to sell a good than what they end up receiving. Both sides of the market exchange are thus better off, have a net gain in welfare, by making the trade. While all types of market exchanges generate gains from trade, this topic is perhaps most important for an understanding of international trade.

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Today, you are likely to spend a great deal of time looking for a downtown retail store hoping to buy either a birthday gift for your uncle or a pair of red and purple designer socks. Be on the lookout for telephone calls from former employers.
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Two and a half gallons of oil are needed to produce one automobile tire.
"For a writer, published works are like fallen flowers, but the expected new work is like a calyx waiting to blossom."

-- Cao Yu, Playwright

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