Lecture11 - Announcements NO homework due on Monday HW5...

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nnouncements Announcements O homework due on Monday W5 will be NO homework due on Monday HW5 will be due next Monday. rades should be up on Blackboard by mid Grades should be up on Blackboard by mid next week. I will post the answers on Blackboard once the grades are up. We will be doing Ch. 6 for the next few lectures. 1of 40
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Chapter PART II FOUNDATIONS OF MICROECONOMICS: CONSUMERS AND FIRMS 6 Household Behavior and onsumer Choice Consumer Choice Prepared by: Fernando & Yvonn Quijano j
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THE BASIS OF CHOICE: UTILITY tility e satisfaction, or reward, a utility The satisfaction, or reward, a product yields relative to its alternatives. The basis of choice. OR, the level of satisfaction or happiness a consumer derives from the consumption of a good or service. 3of 40
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Utility Economists believe the goal of consumers is to maximize utility. We recognize that individuals maximize utility in many different manners. Given $5000, one person might spend it all on othes another might give it all to famine clothes, another might give it all to famine relief, while another might stick it all under a mattress. Each individual is maximizing his/her own utility in his/her own way. Sometimes we replace utility with “satisfaction” or “pleasure.” This is sloppy terminology, but there is no good synonym for utility. 4of 40
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tility Utility we could measure utility we would measure If we could measure utility, we would measure it in units called ‘ utils ’. There is nothing in the eory that says different people who theory that says different people who consume the same good must derive the me number of tils om it Every individual same number of utils from it. Every individual is different and every consumer derives ifferent amounts of utility from the different amounts of utility from the consumption of a good or service. 5of 40
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THE BASIS OF CHOICE: UTILITY marginal utility ( MU ) The additional satisfaction gained by the consumption or use of one more unit of something. total utility ( TU ) The total amount of tisfaction obtained from consumption satisfaction obtained from consumption of a good or service. TU MU Δ = 6of 40 Q Δ
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E BASIS OF CHOICE: UTILITY THE BASIS OF CHOICE: UTILITY law of diminishing marginal utility ( LDMU ) The more of any one good consumed in a given period, the less satisfaction (utility) generated by consuming each additional (marginal) unit of the same good (holding the consumption of all other goods and services constant.) 7of 40
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ample of LDMU Example of LDMU
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This note was uploaded on 03/18/2008 for the course ECON 2005 taught by Professor Zirkle during the Spring '07 term at Virginia Tech.

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Lecture11 - Announcements NO homework due on Monday HW5...

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