432review handout on utility

432review handout on utility - Dr. Westerhold Econ 432...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Dr. Westerhold Econ 432 BASICS ON UTILITY—REVIEW FROM PRINCIPLES Utility : measure of benefit received from consuming a good Total utility : total satisfaction from accumulated consumption (TU) Marginal utility : additional benefit from increasing consumption by one unit. (MU or TU/ Q) ∆ ∆ Chart with TU and MU Given TU fill in MU or if given parts of TU and MU fill in the rest Pizza TU MU 1 50 50 2 80 30 3 100 20 4 100 5 95-5 TU increases as your consume more TU increasing at a decreasing rate (less and less) MU is diminishing as you consume more called diminishing marginal utility: The more you consume of a given product, the less value each successive unit provides. • Applies only to the same product (4 th coke less valued then 3 rd coke; not 4 th coke is less valued than 3 rd pizza) • Consumers may consume as long as MU>=0 (as long as they receive positive benefits) • Stop consuming when MU=0 (why engage in an activity that provides zero benefit) • Irrational to consume when MU<0 (ex: overeating or drinking too much alcohol; makes you worse off) EQUILIBRIU M:...
View Full Document

This note was uploaded on 12/10/2010 for the course ECONOMICS 432 taught by Professor Jannett during the Spring '10 term at Brown.

Page1 / 4

432review handout on utility - Dr. Westerhold Econ 432...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online