Hey, everybody it's Alex Merced again with another video on Economics and today I want to talk about Marginal Price Theory. Again, as I discussed in the view prior to this, the original price theory was supply and demand which works in the sense that prices are affected by supply and demand, but it goes a bit deeper that this, because each person who has a demand for a product doesn't necessarily value that part the same way. So what Marginal Price Theory does, is that it discusses these -- it includes this value judgment in the sense where, like an example would be price is going to be set up where people with the lowest amount; the market price is the price where the supplier is using most profit and people with the most of value get the product, get the product and people who value the product the least, decide to spend the money where there is more value to them.
That's a not the clear synopsis of the theory. A more practical application would be able to see is -- look at the dollars, alright. A lot of the stuff you'll buy at the dollar, $4. But if the dollar would raise all of its prices to two dollars, you would go spend your money on something else. Because you don't value those product so much that even if you demand those products or even if the supplier was nil, you don't value those products enough in order to purchase them.
I mean it's successive when you see at the price production curve, where the only goal is not only to build the supply at a price that everyone's going to pay, but you try to maximize profit. So even if you can create a supply to meet the entire demand, that doesn't necessarily mean, it is the most profitable to do so. And you start gaining Marginal utility. So you starting saying, I create one chair that cost me $3, I can sell off to $5, I profit $2. I built two chairs my total cost on the becoming so and so. Spend between both chairs so and so, as I can sell my own so and so price because there is so many people at this price level are going to buy, because it's all complicated. But at certain points you see, price jumps, due to increased labor, increased material cost, or sometimes even drops into volume discounts, etcetera.
The following is to find the point where you create this number, you create this supply, satisfy this level of demand, you reach an optimum profit. So even if you can create another chair and still sell at a profit, where did is your profit per chair, hit it's maximum. There you really have to take another Economic class, really kind of get a visual on how that works. But that's such the idea of Marginal utility. I was hitting those other x factors when it comes price setting. And as we start now Economics as I will take it to a consideration, how much people value certain products into their pursuing decisions. So this is when you say, Economics has now become solely theories in a vacuum. We are trying to see more practical applications of it that make more sense in a real world application.
So that's the first step, the Marginal Price Theory, a Marginal utility, all that stuff. Thinking in a margin, if I had a one more unit, how does this change my Economic picture, so now I am going to talk about a monopoly price theory in the next video, so I'll see you there.
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