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microbook_3e-page63 - x The Marginal Utility of good X is...

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Change in real income x if the consumer’s money income rises (holding prices constant) , OR x if prices fall (holding money income constant) , x real income rises x budget constraint shifts outward Change in relative price x if the price of good X falls, the relative price of good X falls x the maximum quantity of X he/she can consume increases x budget constraint rotates outward y x y x real income rises p 0 y x p p wage In the case depicted above real income also rises since one price falls while other remains constant. Utility x Utility is the satisfaction that a good or bundle of goods yield relative to their alternatives.
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Unformatted text preview: x The Marginal Utility of good X is the additional satisfaction gained by consuming one more unit of good X. x Diminishing Marginal Utility – The more of one good consumed in a given period, the less satisfaction (utility) generated by consuming each additional (marginal) unit of the same good. Why do demand curves slope down? ONE reason: Since marginal utility falls with each additional (marginal) unit consumed, people are not willing to pay as much for each additional (marginal) unit. Marginal Utility x Total Utility x Page 63...
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