PPT-MARGINAL UTILITY AND CONSUMER CHOICE

35 marginal utility MU Additional satisfaction obtained from consuming one additional unit of a good diminishing marginal utility Principle that as more of a good is consumed the consumption of additional amounts will yield smaller additions to utility. In relation to consumers!!!!!!. Marginal Utility. Marginal = Extra. Utility = Satisfaction. Diminishing marginal utility. Lets test:. If a consumer consumes 1 extra unit (marginal) of a good or service in succession what happens to their utility (satisfaction) after the consumption of that good.. Reflect. Remember yesterday we talked about the utility of our decisions.. All choices are made, either consciously or unconsciously, based on how happy they will make us.. Limitations. Life is full of limitations.. 6. Consumer Behavior and . Utility Maximization. 4 Key Concepts. Understanding Utility: Total and Marginal. Utility Maximization: Equalizing Marginal Utility per Dollar (MU/P. A. = MU/P. B. ). Individual and Market Demand Curves. of. . Consumer Behavior. Blog posts: "Utility". Theory of . Consumer . Behavior (AP only unit). Total Utility and Marginal Utility. Utility Maximization – equalizing marginal utility per dollar spent on various goods. In our study of consumers so far, we have looked at . what they do. , but not . why they do what they do. .. Economics is all about the choices that people make; a better understanding of those choices furthers our understanding of economic behavior.. Ch. 18, R.A. Arnold, Economics 9. th. Ed. Diamond – Water Paradox. This is the name of another interesting observation by Adam Smith.. He observed that sometimes the things which are most useful to us (e.g. water) have a relatively/comparatively low price and things which have little use (e.g. diamond) have a relatively high price.. Edition. PART II. THE MARKET SYSTEM. Choices Made by Households and Firms. Copyright. PART II THE MARKET SYSTEM . (1 of 2. ). Assumptions for Chapters 6 through 12:. perfect . knowledge . The assumption that households . Some amount of income inequality is to be expected in a market economy.. Wage discrimination accounts for a small amount (3–5%) of wage differences.. Women still earn less than men, although the gap has narrowed.. Objectives: . Upon completion of this unit students should be able to;. Define the concept of utility as basis of demand.. Define Marginal utility and diminishing marginal utility.. Draw indifference curve and individual demand curve.. 2. Agenda. Consumer Utility. Consumer Choice. Revealed Preference. 3. Consumer Theory. There are two important pillars that consumer theory rests upon:. The utility function. The budget constraint. 4. THIRD EDITION. ECONOMICS. and. MICROECONOMICS. Paul Krugman | Robin Wells. How consumers choose to spend their income on goods and . services. Why . consumers make choices by maximizing . utility, . a measure of satisfaction from . The utility may be defined as the power of commodity or services which satisfy the human wants. It has nothing to do with usefulness or harmfulness but simply refers to . wheather. the goods & services satisfy human beings or not. In economics the goods whether they are useful or not posses utility which can satisfy human wants.. Introduction. Supply and Demand Models (Ch. 2) are useful for analyzing economic questions concerning markets.. How will increasing the real wage affect output?. In these models we summed each individuals demand to obtain the market demand curve.. Marginal Utility Theory. The purpose of marginal utility theory is to explain an individual household’s demand.. Marginal utility theory predicts that individual demand curves slope downward.. Therefore, market demand curves must also slope downward..