Chapter10 Additional Insights

Chapter10 Additional Insights - Chapter 10: The Logic of...

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Chapter 10: The Logic of Individual Choice: The Foundation of Supply and Demand [Note: Skip “Appendix A” at the end of the chapter.] This chapter discusses the concept of “utility” (the pleasure or satisfaction that a person gets from using/having/consuming a good or service). Even though the author applies the concept of utility to both consumers (demand) and producers (supply), read the chapter with only the consumers in mind. We will come back to the supply side of the market in the next chapter. For now, we are interested in understanding how consumers make decisions. The idea behind the theory of utility is that people demand goods and services for the utility that they derive from the good or service. Some goods or services are desired as “ends” in themselves, such as an art object. Other goods or services are desired for the services that are provided, such as a washing machine. Either way, consumers get satisfaction from having goods or services and thus desire or “demand” them. The theory of utility presumes that we can measure satisfaction. I like to refer to a unit of satisfaction (or utility) as an “util”. Sound bizarre? Well, at some point in the past, somebody established that the length of this line ( _________ ) is one inch and that twelve of them equal one foot…. and we, as a society, as willing to accept it. An inch and
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This note was uploaded on 12/03/2011 for the course ECON 101 taught by Professor Smith during the Fall '11 term at North Shore Community College.

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Chapter10 Additional Insights - Chapter 10: The Logic of...

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