Chapter 6

Chapter 6 - Chapter 6(pages 148-166 Total pages 19...

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Chapter 6 (pages 148-166) Total pages: 19 Diamond-Water Paradox o Definition : The observation that those things that have the greatest value in use sometimes have little value in exchange and those things that have little value in use sometimes have the greatest value in exchange. o Adam Smith Utility o Definition : a measure of the satisfaction, happiness, or benefit that results from the consumption of a good. Util o Definition : An artificial construct used to measure utility. Total Utility o Definition : the total satisfaction a person receives from consuming a particular quantity of a good. o Different than marginal utility. Marginal Utility o Definition : the additional utility a person receives from consuming an additional unit of a particular good. o the change in the total utility divided by the change in the quantity consumed of a good: MU = ΔTU / ΔQ where the change in the quantity consumed of a good is usually equal to one unit. o Example: Suppose you receive 50 utils of total utility from consuming one apple and 80 utils of total utility from consuming two apples. What is the marginal utility of the second apple, or, in other words, what is the additional utility of consuming an additional apple? 30 Utils. Law of Diminishing Marginal Utility o Definition : The marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases. o Law of Diminishing Marginal Utility is based on the idea that if a good has a variety of uses but only one unit of the good is available, then the consumer will use the first unit to satisfy his or her most urgent want. o

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This note was uploaded on 11/03/2009 for the course ECON 2000 taught by Professor Roussell during the Fall '06 term at LSU.

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Chapter 6 - Chapter 6(pages 148-166 Total pages 19...

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