Chapter 7 Notes
I.
The Basic Idea of Utility
a.
Utility and decision making
i.
Utility- a measure of the amount of satisfaction a person
derives from something
ii.
People get utility from goods and services
iii.
Things you like increase your utility
b.
Revealed preference
i.
Utility is subjective and mysterious
ii.
Revealed preference- the idea that peoples preferences can be
determined by observing their choices and behavior
c.
Utility functions
i.
Utility function- a formula for calculating the total utility that a
particular [person derives from consuming a combination of
goods and services
ii.
Bundle- each unique combination of goods and services that a
person could choose to consume
iii.
Utility functions are relative not absolute
II.
Marginal Utility
i.
Marginal utility- the change in total utility that comes from
consuming one additional unit of a good or service
ii.
Diminishing marginal utility- the principle that the additional
utility gained from consuming successive units of a good or
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- Fall '15
- RobertSchwab
- Microeconomics, Utility, income increases, b. Chang
