Chapter-07 - Total utility and marginal utility Law of...

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

View Full Document Right Arrow Icon
10/2/2010 1 C HAPTER 7 r Total utility and marginal utility r Law of diminishing marginal utility r Marginal utility-to-price ratios r Deriving the demand curve r Income and substitution effects 7-2 4-3 UTILITY THEORY r Economists assume that the more pleasure a product gives, the higher price buyers are willing to pay. r Students who like butter are willing to pay more for buttered popcorn than non-buttered popcorn because it offers more total utility. LO-1 r Utility is the pleasure or satisfaction obtained from a good or service. r Three characteristics: c Differs from usefulness c Subjective c Difficult to quantify. Utils (units of utility) 7-4 r Total utility (TU) c The amount of satisfaction obtained from entire consumption of a product. r Marginal utility (MU) c The change in total utility obtained by consuming one additional (marginal) unit of a good or service. 7-5 4-6 LAW OF DIMINISHING MARGINAL UTILITY r The marginal utility of a good declines as more of it is consumed in a given time period. r
Background image of page 1

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

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

{[ snackBarMessage ]}

Page1 / 3

Chapter-07 - Total utility and marginal utility Law of...

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