Lecture 11 - Announcements We will be doing Ch. 6 for the...

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Announcements We will be doing Ch. 6 for the next 2-3 lectures – this will be the last chapter on MT1. I will post practice problems for the midterm this week. HW for ch 5 due tonight. 1
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A Puzzle Why do soda vending machines dispense only one can while newspaper vending machines allow you to take ALL the newspapers? 2
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Chapter 6 Consumer Choice and Demand 3
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4 Utility Utility: the level of satisfaction or happiness a consumer derives from the consumption of a good or service. It is the basis of choice for economists.
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Utility Economists believe the goal of consumers is to maximize utility. We recognize that individuals maximize utility in many different manners. Given $5000, one person might spend it all on clothes, another might give it all to famine relief, while another might stick it all under a mattress. Each individual is maximizing his/her own utility in his/her own way. Sometimes we replace utility with “satisfaction” or “pleasure.” This is sloppy terminology, but there is no good synonym 5
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Utility If we could measure utility, we would measure it in units called ‘ utils ’. There is nothing in the theory that says different people who consume the same good must derive the same number of utils from it. Every individual is different and every consumer derives different amounts of utility from the consumption of a good or service. NOTE: It is NOT possible to compare utility across people, it is only possible to 6
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7 THE BASIS OF CHOICE: UTILITY marginal utility ( MU ) The additional satisfaction gained by the consumption or use of one more unit of something. total utility ( TU ) The total amount of satisfaction obtained from consumption of a good or service. Q TU MU =
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THE BASIS OF CHOICE: UTILITY law of diminishing marginal utility ( LDMU ) The more of any one good a person consumes per period, the less satisfaction (utility) generated by consuming each additional (marginal) unit of the same good (holding the consumption of all other goods and services constant.) In English: The more you consume of a good the less utility you get out of each additional unit consumed (all else equal).
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This note was uploaded on 12/20/2011 for the course ECON 2005 taught by Professor Zirkle during the Fall '07 term at Virginia Tech.

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Lecture 11 - Announcements We will be doing Ch. 6 for the...

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