101chapter5 - Chapter 5. Consumer Choice Chapter Utility...

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Chapter 5. Consumer Choice Chapter 5. Consumer Choice Utility Consumer surplus Budget Constraints Indifference Curves
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I. Utility Analysis I. Utility Analysis what is utility? benefit you get from consuming a good determined by your tastes/preferences (assume these are stable)
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total utility (TU) total utility (TU) total benefit from consuming good example total benefit from 3 cookies
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TU increases as consumption increases, to a point < TU 2 cookies TU 3 cookies
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marginal utility (MU) marginal utility (MU) change in TU from consuming one more of a good example how much MORE utility from an additional pack of gum?
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change in TU from 0 to 1 cookie change in TU from 1 cookie to 2 cookies MU of 1 st cookie MU of 2 nd cookie = = 0
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diminishing marginal utility diminishing marginal utility MU falls as consumption rises get sick of cookies
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MU of 1 st cookie > MU of 2 nd cookie 0
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TU cookie TU rises at slower and slower rate as MU declines MU cookie
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How to maximize TU?
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101chapter5 - Chapter 5. Consumer Choice Chapter Utility...

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