consumer choice w o surplus

consumer choice w o surplus - TheoryofConsumerChoice...

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Theory of Consumer Choice Objectives: Explain the relationship of marginal to total utility (= benefits) and how it motivates consumer choice Explain how the equilibrium rule (MU/P for each good) determines the relation of marginal benefits to market prices for goods Explain and show consumer surplus on a graph
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Utility the satisfaction received from possessing or consuming goods and services. We normally use the more common word “benefit” Economists assume that: Tastes and preferences are determined outside the market exchange (“given”) and play a large role in decision making. Consumers make choices that give them the greatest utility— they maximize utility .
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Marginal Utility The additional utility derived from consuming one more unit of a good or service. Example: Let’s say that now you eat 3 pieces of pizza each week. How much more would you benefit if you consumed four (one more ) pieces of pizza each week?
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Principle of diminishing marginal utility : the more of a good that one obtains in a specific period of time, the less the additional utility derived from an additional unit of the good. As you consume more and more of something, the satisfaction with each unit declines. Examples : All you can eat buffet. Pairs of shoes, movies, etc….
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Total and Marginal  Utility Hours of Listening Util of add’l Hour (marginal utility) Total Utility 1 200 200 2 98 298 3 50 348 4 10 358 5 0 358 6 -70 288 7 -200 88 As the amount of time
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This note was uploaded on 07/17/2011 for the course ECON 102 taught by Professor Jarv during the Summer '09 term at Rio Hondo College.

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consumer choice w o surplus - TheoryofConsumerChoice...

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