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Unformatted text preview: An example. To illustrate how the consumer equilibrium condition determines the quantity of goods 1 and 2 that the consumer demands, suppose that the price of good 1 is $2 per unit and the price of good 2 is $1 per unit. Suppose also that the consumer has a budget of $5. The marginal utility ( MU ) that the consumer receives from consuming 1 to 4 units of goods 1 and 2 is reported in Table 1 . Here, marginal utility is measured in fictional units called utils , which serve to quantify the consumer's additional utility or satisfaction from consuming different quantities of goods 1 and 2. The larger the number of utils, the greater is the consumer's marginal utility from consuming that unit of the good. Table 1 also reports the ratio of the consumer's marginal utility to the price of each good. For example, the consumer receives 24 utils from consuming the first unit of good 1, and the price of...
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This note was uploaded on 11/19/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.
- Fall '10