Chapter 7 Notes - I II III Chapter 7 Notes The Basic Idea of Utility a Utility and decision making i Utility a measure of the amount of satisfaction a

Chapter 7 Notes - I II III Chapter 7 Notes The Basic Idea...

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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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