Econ 203 presentation - Consumer Behavior and Utility...

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    Consumer Behavior and  Utility Maximization Chapter 7 Review
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    Objective  Layman How to spend your money on various goods to make you as happy as possible
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    Objective Economist How to allocate scarce resources (your money) among competing ends (various goods) to maximize utility (“happiness”)
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    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
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    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
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    Diminishing Marginal Utility As you consume more and more of a good … the satisfaction from consuming one more unit of the good (marginal utility)… decreases (diminishes)
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    Diminishing Marginal Utility 0 10 20 30 10 8 6 4
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