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Urbanization & Rural-Urban Migration: Theory and Policy

Debates in Macroeconomics over Role And Effects of Government

Urbanization- is the process by which large numbers of people become permanently concentrated in relatively small areas, forming cities.

Rural to Urban Migration

Focuses on the process of movement of a large number of people from rural to urban areas which often accompanies development.

What are the roles and effects of government in Macroeconomics especially in Urbanization?

plays a critical role in shaping the physical and social character of urban regions

influences the quantity and quality of local services

determines the sharing of costs and distribution of resources among different groups

affects residents' ability to access local government and engage in decision-making, influencing local government accountability and responsiveness to citizen demands.

Microeconomics Fundamentals:

A.Elasticity

Elasticity answers the question how much?

Economists used three elasticity's:

Price Elasticity

Income Elasticity

Cross Elasticity

Price Elasticity - How sensitive people's purchases are of a product to changes in the price of the product, for example if the price of gas rises a lot and you buy only a little less gas than you did before, we say that your consumption of gas is not very sensitive to price changes. Economists say that your consumption of gas is price inelastic. If the price of apps rises a little and you buy a lot fewer apps, then we say that your consumption of apps is very sensitive to price changes. Economists say that your consumption of apps is price elastic.

Income Elasticity - how sensitive people's purchases of a product are in response to changes in their incomes, for example if your income rises a lot and you consume only a little more Pizza than you did before, we say that your consumption of pizza is not very sensitive to income changes. Economists say that your consumption of pizza is income inelastic. If your income rises a little and you consume a lot more wine than you did before, we say that your consumption of wine is very sensitive to income changes. Economists say that your consumption of wine is income elastic.

Cross Elasticity - how sensitive people's purchases of one product are in response to changes in the price of a different product, for example if the price of hotdogs rises a little and you consume a lot less ketchup than you did before, we say that your consumption of ketchup is very sensitive to changes in the price of hotdogs.

Cross elasticity also tells us whether consumers regard two products as substitutes or complements. Substitutes are goods that consumers usually consume in place of each other while Complements are goods that consumers usually consume together.

B.Relationship Between Taxes & Elasticity

Taxes and Elasticity - The tax incidence depends on the relative price elasticity of supply and demand. When supply is more elastic than demand, buyers bear most of the tax burden. When demand is more elastic than supply, producers bear most of the cost of the tax.

Consumer Choice: Maximizing Utility and BehavioralEconomics

A.Utility Theory

A theory postulated in economics to explain behavior of individuals based on the premise people can consistently order rank their choices depending upon their preferences.

Underlying Assumptions

1. More-is-better

The assumption that more consumption is always better.

2. Completeness

Consumers are able to compare the benefits tied to consumption.

3. Mix-is-better

The assumption that a mix of consumption bundles is always better than stand-alone choices.

4. Transitive

Consumers are able to rank order the desirability of various goods and services

Ordinal Utility makes a possible rank ordering of preferred goods and services

Cardinal Utility enables consumers to rank the magnitude of how much they prefer one good to another.

Utility Maximization

The concept that individuals and firms seek to get the highest satisfaction from their economic decisions.

B. Consumer Equilibrium & Demand

The termdemandto refer to the amount of some good or service consumers are willing and able to purchase at each price.

What a buyer pays for a unit of the specific good or service is calledprice. The total number of units purchased at that price is called thequantity demanded.

Demand is not the same as quantity demanded. When we talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule.

Theequilibrium priceis the only price where the plans of consumers and the plans of producers agree

This common quantity is called theequilibrium quantity. At any other price, the quantity demanded does not equal the quantity supplied, so the market is not in equilibrium at that price.

C. Behavioral Economics

THEORY OF CONSUMER BEHAVIOR

A. Total Utility and Marginal Utility

1. Utility - The ability of a good or service to satisfy a consumer's desire, as wellthe satisfaction or pleasure obtained from the consumption of a good or services.

2. Total Utility / graph - The total amount of satisfaction gained from consuming a single product or a combination of products.

3. Marginal Utility

The extra utility a consumer obtains from the consumption of one additional unit of a good or service.MU=(jam triangle di ko knows san hahanapin)TU/(triangle) Qconsumed

4. MU, demand and elasticity

a. Diminishing MU explains the law of demand

b. MU and elasticity

CONSUMER CHOICE AND THE BUDGET CONSTRAINT: UTILITY MAXIMIZING RULE

1. Assumptions

Rational Behavior- we want the most from our money.

Preferences- are known and measurable.

Budget Constraint- Consumer's incomes are limited because their individual resources are limited.

Prices- Goods and services have prices and are limited in relation to demand.

2. Utility Maximizing Rule

To maximize utility, consumers should spend their money in such a way that the last dollar spent on each good or service yields the same marginal utility.

Answer the following:

What can you say about the topic above?

a. reaction/reflection on the information above

b. realizations on the informations