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Chapter 10 Logic of Individual Choice Foundation of Supply and Demand

Chapter 10 Logic of Individual Choice Foundation of Supply and Demand

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Chapter 10: The Logic of Individual Choice: The Foundation of Supply and Demand Total utility refers to the total satisfaction one gets from consuming a product. Marginal utility refers to the satisfaction one gets from consuming one additional unit a product above and beyond one has consumed up to that point. Utility is the pleasure or satisfaction people get from doing or consuming something and the price of doing or consuming that something. Principle of diminishing marginal utility is as you consume more of a good, after some point, the marginal utility received from each additional unit of a good decrease with each additional unit consumed – all other things equal. Price of Rational Choice – spend your money on those goods that give you the most marginal utility per dollar. o IF MUx/Px > MUy/Py – choose to consume an additional unit of good x In this case reduce the amount of consumption in good Y and increase the consumption of good X
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