Topic 4 Abbreviated Utility I. Some General Things A. Think of this as your happiness quotient. It is a unit-less number (we make up a unit, “utils,” that really are worthless). B. Utility applies to consumers, not producers. II. Specific Terms A. Total Utility 1. Total utility is the sum total of the marginal utilities from all goods consumed. B. Marginal Utility 1. Marginal utility is the extra happiness quotient received from consuming one extra good. 2. As consumption increases, marginal utility decreases. 3. Point of satiation occurs when marginal utility has declined to zero (increased consumption means negative marginal utility). C. Marginal Value 1. This is derived from the concept of utility – it is simply the dollar translation of marginal utility. 2. Ex: 50 “utils” might equal $10, or $18, or $1.5 billion, all depending on the consumer. 3. It is generally easiest to think of this as equal to the number of utils (but in dollars) although that is not a necessary condition of utility theory. 4.
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