Documents about Marginal Utility
TA_Marginal Utility Lecture
UNC, ECON 001
Excerpt: ... Marginal Utility Theory of Household Behavior When the theory of consumer behavior was first developed an approach different from the indifference curve analysis was utilized. Economists measured the satisfaction that a person received from a unit of a commodity as the "utility" (or amount of psychological pleasure) that commodity provided the consumer. Say you consume 10 units of a commodity per month, the total utility you receive is simply the sum of the utilities (the total psychic pleasure) received for each unit. Say, however, that you've been consuming 10 units of something and you decide to consume one unit more . the addition to total utility brought about by consuming one more unit, is the marginal utility of the commodity. DO NOT CONFUSE TOTAL AND MARGINAL UTILITY : < If you had to choose between giving up totally one of the following, which would you choose, water or the movies? > The movies, naturally since your total utility from water is infinitely higher than that from movies. < However, w ...
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keys
Maple Springs, ECON 1000
Excerpt: ... LECTURE 5 : consumer choice key terms : budget line relative prices real income marginal utility principle of diminishing marginal utility indifference curve marginal rate of substitution ...
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Ag Econ Misc notes 1
Colorado State, AREC 202
Excerpt: ... Ag Econ Extra notes If marginal utility is positive, the consumer must be buying too little to maximize use total utility marginal utility price = positive (not buying enough) no consumer will rationally purchase where the marginal utility is negative Q 0 1 2 3 4 5 Marginal Utility -6 4 3 2 1 Total utility 0 6 10 13 15 16 Price 1 1 1 1 1 1 Net Marginal Utility -5 3 2 1 0 $6, 1 consumer surplus $3, 2 $2, 3 $1, 4 Consumer surplus amount above market price that will still be purchased marginal utility /price vs quantity total utility is how much out of budget that is spent will spend until the marginal utility = price what impact will changes in consumer patterns affect taxes and the consumption shifts in taxes will change how consumers spend money Net marginal = marginal price ...
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ch7
UWO, ECON 1020
Excerpt: ... consumes various quantities of movies and pop. Notice that Lisa's total utility increases as she consumes more of each good. But the increase in utility gets smaller as she increases her consumption. Marginal utility is the change in total utility that results from a one-unit increase in the quantity of a good consumed. As the consumption of a good increases, the marginal utility derived from each successive unit of that good diminishes. We call this decrease in marginal utility as the quantity of the good consumed increases the principle of diminishing marginal utility . 2 Maximizing Utility Consumer equilibrium is a situation in which a consumer has allocated all his or her available income in the way that, given the prices of goods and services, maximizes his or her total utility. Lisa's utility-maximizing combinations of movies and pop are shown in the table below. Total utility Movies Pop from Quantity Total utility Total utility Six-packs movies and per month per month pop 0 0 291 291 ...
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101-9_07
Cornell, ECON 1110
Excerpt: ... Econ 101 Lecture 9 The Law of Demand: People do less of what they want to do as the cost of doing it rises. The cost of an activity, good, or service involves not just monetary costs, but nonmonetary costs as well. Example 9.1. "Free" Hgen-Ds ice cream. To help celebrate the re-opening of Beebe Lake, the local Hgen-Ds supplier set up a booth next to the lake and offered free ice cream. Who was pleased about this offer? Who was displeased? "Needs" vs. "Wants" "Californians don't have nearly as much water as they need." vs. "Californians don't have nearly as much water as they want when the price of water is very low." Rice farming in the Sacramento valley Lush landscaping in San Diego vs. sparse landscaping in Santa Fe The Rational Utility Maximizer Pepsi Consumption (cans/wk) 0 1 2 3 4 5 6 Utility from Pepsi consumption (utils/wk) 0 10 15 19 22 24 25 1. Utility increases with consumption 2. Beyond some point, the additional utility from extra consumption declines. Definition. The marginal utility f ...
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handout9
Middlebury, EC 155
Excerpt: ... Introductory Microeconomics EC155A and B Lecture 15: The Logic of Individual Choice Ah, the pastry! On satisfaction Satisfaction - pleasure of something - is the central aspect of human behavior that economists study. As mentioned before, others aspects are important: as studied in anthropology, psychology, and sociology. As self-interested people, we pursue and try to attain the maximum possible satisfaction Utility the satisfaction one gets from consuming a good or a service Introductory Microeconomics EC155A and B Lecture 15: The Logic of Individual Choice Measures of utility The principle of diminishing marginal utility : after some point, the marginal utility received from each additional unit of a good decreases with each additional unit consumed. Introductory Microeconomics EC155A and B Lecture 15: The Logic of Individual Choice Rational choice and marginal utility The basic principle of marginal choice: spend your money on those goods that ...
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Ch08A
George Mason, ECON 103
Excerpt: ... APPENDIX 8 Marginal Utility and Indifference Curves After studying this chapter you will be able to Explain the connection between utility and indifference curves Explain why maximizing utility is the same as choosing the best affordable point Explain why utility exists Two Ways of Describing Preferences The marginal utility model describes preferences by using the concept of utility. The indifference curve model describes preferences by using the concepts of preference and indifference. Figure A8.1 on the next slide illustrates the connection between these two ways of describing preferences. Two Ways of Describing Preferences In part (a), you can see the levels of utility derived from each quantity of movies and soda. Three combinations generate 331 units of utility and two combinations generate 313 units of utility. Indifference curves pass through these points. Maximizing Utility is Choosing the Best Affordable Point Call the marginal utility of movies MUM . Call the marginal utility o ...
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ch03_Solutions
Cornell, PAM 2000
Excerpt: ... she will be violating the assumption of transitivity. The third statement is inconsistent with the first two. If more is better, then the marginal utility of a good must be positive. That is, total utility must increase if the consumer consumes more of the good. An ordinal ranking simply orders the baskets, but does not give any indication as to how much better one basket is when compared with another; only that one is better. A cardinal ranking not only orders the baskets, but also provides information regarding the intensity of the preferences. For example, a cardinal ranking might indicate that one basket is twice as good as another basket. 3. 4. 5. 6. Page 3 - 1 7. Utility Slope of this line measures marginal utility at this level of consumption, H Total Utility H Hamburgers Marginal utility would be measured as the slope of a line tangent to the total utility curve in the graph above. 8. The two cannot be plotted on the same graph because utility and marginal utility are not measured in t ...
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Econ 4010 Lecture 2
USC, ECON 4010
Excerpt: ... <Lecture 2> 3. Consumer Behavior: Maximizing Utility Budget Line slope of the budget line An increase in consumer income A decrease in consumer income A decrease of price of food An increase in price of food - A change in price of clothing indifference curvesbudget lines Maximizing Utility the slope of the indifference curveslope of the budget line MRSratio of the price Corner Solutions Maximizing Utility control variables Marginal Utility Diminishing Marginal Utility ...
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chap7
CUNY Queens, ECON 101
Excerpt: ... Chapter 7: Consumer choice Utility Utility = level of happiness or satisfaction associated with alternative choices utility maximization Total and marginal utility total utility - the level of happiness derived from consuming the good marginal utility - the additional utility that is received when an additional unit of a good is consumed Marginal utility # of slices of pizza total utility 0 0 1 2 3 4 5 70 110 130 140 145 marginal utility 70 40 20 10 5 Law of diminishing MU law of diminishing marginal utility marginal utility declines as more of a particular good is consumed in a given time period, ceteris paribus even though marginal utility declines, total utility still increases as long as marginal utility is positive. Total utility will decline only if marginal utility is negative Diamond-water paradox As noted by Adam Smith, water is essential for life and has a low market price (often a price of zero) while diamonds are not as essential yet have a very high ma ...
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sol1
UVA, JRH 5
Excerpt: ... Economics 201: Problem Set 1 Solutions 1. Alan has a total of $64 to spend on CDs and DVDs. A CD costs $8 and a DVD costs $16. The table below represents Alans preferences. It shows the marginal utility of additional CDs and DVDs. For example, when Alan has 2 CDs, the marginal utility of an additional CD is 80. Similarly, when Alan has 5 DVDs, the marginal utility of an additional DVD is 80. Number Marginal Utility of discs CD DVD 0 96 160 1 88 144 2 80 128 3 72 112 4 64 96 5 56 80 6 48 64 7 40 32 8 32 16 a. What is Alans sequence of purchases? How many CDs and DVDs does he ultimately buy? When Alan has no units of either good, the marginal utility per dollar for CDs is 96/8 = 12 and the marginal utility per dollar for DVDs is 160/16 = 10, so Alans first purchase is a CD. The CD costs $8, so Alan has $56 left to spend. With one CD and no DVDs, the marginal utility per dollar for CDs is 88/8 = 11 and the marginal utility per dollar for DVDs is still 160/16 = 10. Alans second purchase is also a ...
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Econ 203 presentation
USC, ARLT 100g
Excerpt: ... Consumer Behavior and Utility Maximization Chapter 7 Review Objective Layman How to spend your money on various goods to make you as happy as possible Objective Economist How to allocate scarce resources (your money) among competing ends (various goods) to maximize utility ("happiness") Get the jargon straight Utility of a good Want-satisfying power of that good Satisfaction / pleasure / happiness you get from consuming the good Caution Utility of a particular good varies across people Utility is difficult to measure Pretend that we can measure it in UTILS Some more jargon Total utility Total satisfaction (in UTILS) from consuming some quantity of the good E.g. Total utility from eating 2 apples is 10 UTILS Marginal utility Extra satisfaction from consuming ONE MORE unit of a good Diminishing Marginal Utility As you consume more and more of a good . the satisfaction from consuming one more unit of the ...
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Ch12___Consumer_Theory__Handouts_
UNC, ECON 101
Excerpt: ... Consumer Choice and Demand CHAPTER 12 CHAPTER CHECKLIST When you have completed your study of this chapter, you will be able to 1 2 Calculate and graph a budget line that shows the limits to a persons consumption possibilities. Explain the marginal utility theory and use it to derive a consumers demand curve. CHAPTER CHECKLIST When you have completed your study of this chapter, you will be able to 1 2 Calculate and graph a budget line that shows the limits to a persons consumption possibilities. Explain the marginal utility theory and use it to derive a consumers demand curve. 12.1 CONSUMPTION POSSIBILITIES The Budget Line A budget line describes the limits to consumption choices and depends on a consumers budget and the prices of goods and services. Let s Lets look at Tinas budget line: Tina s Tina has $4 a day to spend on two goods: bottled water and gum gum. The price of water is $1 a bottle. The price of gum is 50 a pack pack. 12.1 CONSUMPTION POSSIBILITIES Pw = Price of ...
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L3H2
Idaho, AGECON 302
Excerpt: ... UI AgEc 302 Spring 2008 Lecture #3: Consumer Theory Handout #2: Total Utility Function, Marginal Utility Function and Marginal Rate of Substitution A total utility function is represented by the following equation: U ( x, y ) = xy = x 0.5 y 0.5 . This function provides a utility level equal to 4. X and Y are two groups of goods. 1. Does the corresponding indifference curve intersect either X-axis or Y-axis? Explain. A). No. The utility level provided by this utility function is 4 > 0. For this utility function to be positive, both X and Y have to be non-zero numbers. 2. Graph the corresponding indifference curve. To graph the corresponding indifference curve, express Y as a function of X. Note, that the utility level has to stay constant (= 4). U ( x, y ) = x 0.5 y 0.5 = 4 ; y 0.5 = 4 x 0.5 ( y 0.5 ) 2 = y= 16 x Y 16 42 ( x 0.5 ) 2 A (1;16); MRS = 16 = -dY/dX If X = 1, then Y = 16 If X = 2, then Y = 8 If X = 4, then Y = 4 8 B (2;8); MRS = 4 = -dY/dX 4 C (4;4); MRS = 1 = -dY/dX U=4 1 2 4 X 1 3. ...
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Food and Resource Economics 3
Mississippi State, AEC Food and r
Excerpt: ... Food and Resource Economics Homework 3 Abby Kelly Questions for Thought and Review 1. Marginal utility and total utility deal with the same concept, which is how much satisfaction one gets from a good. Where they differ is marginal utility refers to the satisfaction one gets form consuming one additional unit of a product above and beyond what one has consumed up to that point. Whereas, total utility is the total satisfaction one gets from consuming a product. 2. The principle of diminishing marginal utility states that after some point the marginal utility received from each additional unit of good decreases with each addition unit consumed all other things equal. Therefore the marginal utility of each additional unit consumed is less than the one before, and vice versa. 3. If the principle did not hold true in the real world it would mean that the consumers where not acting rationally and their choices had no logic behind them. 5. Yes, the principle hold true for studding for classes. You get benefit, o ...
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chapter7
Des Moines CC, ECN 131
Excerpt: ... er prime rib. Economists know that as consumers we differ in our likes and dislikes and that we aren't always rational and consistent. But by assuming that the marginal benefit of goods declines as more are purchased and by assuming rational choices, we can get insight into market demand. These simplifications help establish cause-and-effect relationships between changes in the prices of goods or changes in income and the willingness of consumers to buy certain goods. In this chapter we derive demand curves and show that they're consistent with rational behavior by consumers. Concept Preview After reading this chapter, you should be able to 1. Distinguish between the concepts of total and marginal utility and show how the way marginal utility varies with purchases reflects a person's preferences. 2. Describe the conditions for consumer equilibrium as expressed by the equimarginal principle for purchases. 3. Show how total and marginal benefit relate to total and marginal utility . 4. Demonstrate that buyin ...
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Krugman_SolMan_CH10
Georgia Tech, ECON 2106
Excerpt: ... Krugman_SolMan_CH10 11/11/04 4:02 PM Page 85 The Rational Consumer 1. a. Al has increasing marginal utility of economics classes. Each additional class adds more to his total utility than the previous class. b. Al has constant marginal utility of volume of music. His total utility increases by 5 utils for each additional notch of volume, so his marginal utility is constant at 5 utils. c. Al has diminishing marginal utility of Friends episodes. Although additional episodes increase his total utility, they do so less and less. That is, his marginal utility declines. d. Al has diminishing marginal utility of marshmallows. For a certain range, additional marshmallows add to his total utility, so total utility increases. But total utility increases by less and less. In fact, total utility eventually begins to decline. In other words, his marginal utility becomes smaller and smaller and eventually becomes negative. 10 2. After you have taken the first newspaper, the marginal utility of the second news ...
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lecture6
Cal Poly Pomona, EC 201
Excerpt: ... EC 1 UCLA Dr. Bresnock Lecture 6 Explanations for the "Law of Demand" (1) Diminishing Marginal Utility (DMU) - the additional satisfaction that a consumer receives from consuming equal additional units of a good or service decreases as more units are consumed. (And visa versa) Income Effect - as the price of a good increases the consumer's "real income", or purchasing power, declines. Consequently as the P s the consumer purchases less of the good or service and less of other goods or services and visa versa. Substitution Effect - among goods that a consumer considers to be substitutes, the consumer will purchase more units of the relatively cheaper good and visa versa. This is a "relative price", or "relative attractiveness" concept. Remember that the consumer is indifferent between substitute goods to satisfy their need. (2) (3) Concept of Utility "Utility" - means satisfaction; want-satisfying power. A "util" means a unit of satisfaction, happiness, "jollies". Utility does not mean usefulness. Utili ...
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ae200_consumerchoice
Ohio State, AED ECON 200
Excerpt: ... Ch. 6: Consumer Choice: Maximizing Utility and Behavioral Economics Utility Theory Definitions Utility: A measure of the satisfaction, happiness, or benefit that results from the consumption of a good. Util: An artificial construct used to measure utility. Total Utility: The total satisfaction received from consuming a particular quantity of a good. Marginal Utility : The additional utility a person receives from consuming an additional unit of a good. Exhibit 1 in Book. Law of Diminishing Marginal Utility The marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases. Examples in Book Diamonds vs. Water Total Utility versus marginal utility Goods change as we become more familiar with them Why do people keep playing golf? Interpersonal utility comparisons. We often do compare marginal utility of additional income across different income levels, but it is not always appropriate Consumer ...
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Chapter 21
Dickinson State, ECON 201
Excerpt: ... Econ 201 - Lecture Notes Chapter 21 - McConnell & Brue, 15th Edition Consumer Behavior and Utility Maximization I. Law of Demand 1. An inverse relationship between price and quantity demanded. 2. Three reasons for Law of Demand. (1) Income Effect - as price of a good decreases, consumers purchase more because their money incomes increase in value. Goods become cheaper, money goes further. (2) Substitution Effect - As price of Good A decreases, consumers shift from substitute Good B (a close substitute for A) to now cheaper Good A. Consumers now purchase greater quantity of the now cheaper Good A which now has a lower price. (3) Law of Diminishing Marginal Utility . a. Consumers will increase purchases of a good only if its price decreases because they obtain less and less satisfaction (utility) from additional (marginal) units of a good. b. Utility in economics means satisfaction. It is very subjective. Units of utility are called utils. Concept of utility has no units because it is a subjective concept ...
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Chapter 7
George Mason, ECON 103
Excerpt: ... CHAPTER 7 Utility and Demand After studying this chapter you will be able to Explain what limits a households consumption choices Describe preferences using the concept of utility and distinguish between total utility and marginal utility Explain the marginal utility theory of consumer choice Use marginal utility theory to predict the effects of changing prices and incomes Explain the paradox of value Water, Water, Everywhere Why is water, which is so vital to life, far cheaper than diamonds, which are not essential? Why does a National Football League player, on the average, earn more than 45 times the amount that a child-care worker earns? This chapter helps you to answer questions such as these. The Households Budget Consumption Possibilities A households consumption possibilities are constrained by its income and the prices of the goods and services it buys. A household has a given amount of income to spend and cannot influence the prices of the goods and services it buys. A household ...
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chapter10
UCSC, ECON 1
Excerpt: ... The Rational Consumer 1. a. Al has increasing marginal utility of economics classes. Each additional class adds more to his total utility than the previous class. b. Al has constant marginal utility of volume of music. His total utility increases by 5 utils for each additional notch of volume, so his marginal utility is constant at 5 utils. c. Al has diminishing marginal utility of Friends episodes. Although additional episodes increase his total utility, they do so less and less. That is, his marginal utility declines. d. Al has diminishing marginal utility of marshmallows. For a certain range, additional marshmallows add to his total utility, so total utility increases. But total utility increases by less and less. In fact, total utility eventually begins to decline. In other words, his marginal utility becomes smaller and smaller and eventually becomes negative. 10 2. After you have taken the first newspaper, the marginal utility of the second newspaper is zero: you dont learn any more news by having ...
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lesson06
UNL, ECON 212
Excerpt: ... lesson06 Page 1 of 2 Unit 2 > Lesson 6 Consumer Behavior and Utility Maximization Introduction Consumer behavior is an essential component of microeconomics. Remember in Chapter 1, we said microeconomics was concerned with the trees in the forest and not the overall forest. How consumers react to price changes, with limited income helps explain the law of demand. Chapter 8 discusses consumer utility (satisfaction), marginal utility , the law of diminishing marginal utility , and the maximizing utility rule. All of these are important in determining the behavior of consumers. Objectives At the end of this lesson you should be able to: define and distinguish between the income and substitution effects of a price change. explain why a consumer will buy more of a commodity when its price falls by using the income and substitution effects. explain why a consumer will buy less of a commodity when its price rises by using the income and substitution effects. define marginal utility and state the law of diminishing ...
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M_ch4
Fayetteville State University, ECO 2000
Excerpt: ... Curve dmacpher@coss.fsu.edu Jump to first page Utility Theory s Economists assume that the more pleasure a product gives, the higher price buyers are willing to pay. x For example, students who like butter are willing to pay more for buttered popcorn than non-buttered popcorn because it offers more total utility. dmacpher@coss.fsu.edu Jump to first page Total vs. Marginal Utility s s s Utility is the pleasure or satisfaction obtained from a good or service. Total utility is the amount of satisfaction obtained from entire consumption of a product. Marginal utility is the change in total utility obtained by consuming one additional unit. dmacpher@coss.fsu.edu Jump to first page Marginal Utility the change in total utility Marginal = Utility the change in quantity dmacpher@coss.fsu.edu Jump to first page Total vs. Marginal Utility Imagine you are at the show. For a time additional boxes of popcorn deliver to you positive while diminishing utility. After a while, though, you not only do not wan ...
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