ch05_condensed

ch05_condensed - Micro 101, Chapter 5 1 Chapter 5 How do...

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Micro 101, Chapter 5 1 Chapter 5 How do consumers behave (make decisions)? goal: maximize “utility” (“happiness”) subject to constraints - “marginal utility per dollar” spent on a good or service will play key role Law of ___________ Marginal Utility (LDMU): the value that a consumer places on additional units of a particular good will diminish as total consumption of that good increases (holding other goods constant) “utility” (U) “marginal” level of satisfaction what happens with from consumption “the next” unit (measured in “_____”) (extra, incremental) marginal utility (MU): the ________ in utility derived from consuming an additional unit of a good = the amount of utility gained: Q U MU =
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Micro 101, Chapter 5 2 My daughter’s cheese consumption (diminishing MU): Q Total Utility Marginal Utility 1 100 100 2 150 50 3 180 30 4 190 10 5 195 5 6 195 0 7 190 -5 MU is ________ (until Q=7) but _______ with Q
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Micro 101, Chapter 5 3 Even if ___________ rises with consumption, ___________ typically declines with consumption: U Q MU Q
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Micro 101, Chapter 5 4 Necessary Condition for Maximizing Utility: Main conclusion: The consumer should spend all available income such that the ________ marginal utility is the same across all goods (assume no savings) Case 1 : Suppose prices of all goods are the ________: Result : Then spending across goods should be adjusted such that the marginal utility of
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ch05_condensed - Micro 101, Chapter 5 1 Chapter 5 How do...

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