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Unformatted text preview: eco202 Prof. Jui-Chi Huang eco202ch8Spr04.doc CHAPTER 8 CONSUMER BEHAVIOR AND UTILITY MAXIMINATION 1. Law of Demand the demand curve is downward-sloping , why? a. Income and substitution effects b. The law of diminishing marginal utility c. Indifference-curve explanation (more advanced, not covered ) 2. Income and Substitution Effects a. Income effect: P Purchasing Power (or Real Income) b. Substitution effect: the impact that a change in a products price has on its relative expensiveness and consequently on the quantity demanded. 3. Law of Diminishing Marginal Utility a. Consumers can fulfill specific wants with succeeding units of a commodity but that each added unit provides less utility than the last unit purchased. b. Automobile example. c. Utility is want-satisfying power . d. Utils are units of utility measuring satisfaction with units. i. Total utility the total amount of satisfaction or pleasure a person derives from consuming some specific quantity of a good or service. derives from consuming some specific quantity of a good or service....
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