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Chap5 - Choices by Consumers Chapter 5 Econ 101.01 Fall...

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Choices by Consumers Chapter 5 Econ 101.01 Fall 2011 Prof. Michael Potepan
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Utility maximization Utility satisfaction consumers receive from consuming a good in real world, immeasurable in economic theory, we sometimes pretend we can measure it Utility maximization objective of consumers is to get the greatest satisfaction
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Constraints on maximizing utility Consumer choice consumers must make choices because opportunity to buy things (budget or income) is limited Two most important constraints on consumer choice: budget (or income) prices of goods Other constraints may be important too time information legal constraints
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Diminishing marginal utility Marginal utility the additional utility the consumer receives from consuming one more unit of the good
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Diminishing marginal utility Marginal utility the additional utility the consumer receives from consuming one more unit of the good MU X = Change in Utility Change in Consumption = Δ U Δ X
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Diminishing marginal utility Marginal utility the additional utility the consumer receives from consuming one more unit of the good Diminishing marginal utility MU X = Change in Utility Change in Consumption = Δ U Δ X
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Diminishing marginal utility Marginal utility the additional utility the consumer receives from consuming one more unit of the good Diminishing marginal utility The more units of a good the consumer consumes… MU X = Change in Utility Change in Consumption = Δ U Δ X
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Diminishing marginal utility Marginal utility the additional utility the consumer receives from consuming one more unit of the good Diminishing marginal utility The more units of a good the consumer consumes… the less additional utility the consumer receives… MU X = Change in Utility Change in Consumption = Δ U Δ X
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Diminishing marginal utility Marginal utility the additional utility the consumer receives from consuming one more unit of the good Diminishing marginal utility The more units of a good the consumer consumes… the less additional utility the consumer receives… marginal utility diminishes. MU X = Change in Utility Change in Consumption = Δ U Δ X
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Diminishing marginal utility Marginal utility the additional utility the consumer receives from consuming one more unit of the good Diminishing marginal utility The more units of a good the consumer consumes… the less additional utility the consumer receives… marginal utility diminishes. Sushi example MU X = Change in Utility Change in Consumption = Δ U Δ X
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Utility & marginal utility for Sushi
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Utility & marginal utility for Sushi Quantity Total Utility Marginal Utility Marginal Utility per Dollar
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Utility & marginal utility for Sushi Quantity Total Utility Marginal Utility Marginal Utility per Dollar 0 0
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Utility & marginal utility for Sushi Quantity Total Utility Marginal Utility Marginal Utility per Dollar 0 0 1 80
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Utility & marginal utility for Sushi Quantity Total Utility Marginal Utility Marginal Utility per Dollar 0 0 1 80 2 140
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Utility & marginal utility for Sushi Quantity Total Utility Marginal Utility Marginal Utility per Dollar 0 0 1 80 2 140 3 180
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Utility & marginal utility for Sushi Quantity Total Utility Marginal Utility Marginal Utility per Dollar 0 0 1 80 2 140 3 180 4 200
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Utility & marginal utility for Sushi Quantity Total Utility Marginal Utility Marginal Utility per Dollar 0 0 80 1 80 2 140 3 180 4 200
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