{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Topic4_intmicro_utility_part_2_TW

# Topic4_intmicro_utility_part_2_TW - MARGINAL UTILITY...

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

MARGINAL UTILITY Remember that whenever you see the word Marginal in economics it refers to an additional unit. MARGINAL EXTRA UNIT From now on we will have the following notation: Marginal Utility -> MU Marginal Utility of x1 = MU1 Marginal Utility of x2=MU2 MU1 = the extra utility obtained by the consumer from consuming one additional unit of x1 MU2 = the extra utility obtained by the consumer from consuming one additional unit of x2 Mathematically, MU1 and MU1 can be written as follows: Thus, the marginal utility is the extra utility that the consumer gets from consuming an additionalunit of the good. 1 11 1 2 2 2 2 where is the change in utility and is the change in x where is the change in utility and is the change in x U MU U x x U MU U x x

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

View Full Document
Consider the following example that shows the amount of beer and utility obtained by the consumer . Lets obtain the MU for beer. Beer Utility MU 1 50 50 2 80 30 3 90 10 4 95 5 50 For the first unit of beer: =50 1 30 From the first to the second unit of beer: =30 1 10 From the second to the third unit of beer: =10 1 From the third to the fourth unit o U MU x U MU x U MU x 5 f beer: =5 1 U MU x This means that the consumer’s utility increases by 30 units when he consumes the second beer. The third beer increases the utility by 10 and the fourth beer by 5. This means that MU is decreasing. This implies that the consumer gets a lower satisfaction from extra units as he consumes more of the good. This is a result of convexity. Decreasing MU means that the consumer values the good less (and therefore gets a lower satisfaction) from additional units as he has more of the good.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 8

Topic4_intmicro_utility_part_2_TW - MARGINAL UTILITY...

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

View Full Document
Ask a homework question - tutors are online