PS utility(1) - ProblemSet:UtilityTheoryandConsumerChoice

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Problem Set:  Utility Theory and Consumer Choice There are a few things about this topic that I wanted to point out or clarify before you begin the  problem set. Marginal  is a very important term in economics, so it is important to really understand what it  means.  The text defines  marginal  as last .   A better definition is “additional” or “each  additional”.   For example, suppose you consume 10 cookies.  The utility you get for “each  additional” cookie is its marginal utility.   Utility theory  assumes  that: o Consumers know  what their marginal utility would be for a good.  There is a lot of  evidence that this is often unrealistic.  I will introduce some alternative explanations later,  when we discuss Behavioral Economics.  o One person’s utility is not related to whether other people have the good.  It may,  however, in certain situations.  For example, the utility you get from buying texting on  your phone depends on  how many other people have it. This is called a network effect. 
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

PS utility(1) - ProblemSet:UtilityTheoryandConsumerChoice

This preview shows document pages 1 - 2. Sign up to view the full document.

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