Chapter 7_ Utility .pdf - Utility a measure of the amount of satisfaction a person derives from something \u2022 Way to describe the value someone places

Chapter 7_ Utility .pdf - Utility a measure of the amount...

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Utility: a measure of the amount of satisfaction a person derives from something Way to describe the value someone places on something you can get utility from goods and services and experiences It is hard to measure and subjective Utility Maximization: Assumption that people are rational utility maximizes Revealed Preference : the idea that people’s preferences can be determined by observing their choices and behavior Ex: someone orders chocolate ice cream from a store, you can assume that the chocolate ice cream gives them more utility than vanilla ice cream Have to make a decision to give more weight to what people say or what people do This is not comparing between two people’s preferences, but only looking at one person Utility Function: a formula for calculating the total utility that a particular person derives from consuming a combination of goods and services the more systematic way of calculating someone’s utility than revealed preference Connects each possible bundle to the corresponding level of utility The utility measurements are relative instead of absolute Ex: eating dinner you get: Bundle: a unique combination of goods and services that a person could choose to consume Marginal Utility: the change in total utility that cone from consuming one additional unit of a good or service Negative Marginal Utility: one more unit decreases your total utility