Utility:
a measure of the amount of satisfaction a person derives from something
Way to describe the value someone places on something
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you can get utility from goods and services and experiences
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It is hard to measure and subjective
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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
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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
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This is not comparing between two people’s preferences, but only looking at one person
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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
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Connects each possible bundle to the corresponding level of utility
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The utility measurements are relative instead of absolute
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Ex: eating dinner you get:
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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
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