ch5_part_2 - Econ 221 Ch. 5 Part 2: Purchasing Goods to...

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Econ 221 Ch. 5 Part 2: “Purchasing Goods to Maximize Net Benefits: The Idea of Consumer Surplus” “Benefits ” are simply the monetary value of a given amount of utility. In addition to realizing benefits from the consumption of goods and services, we also incur costs . For a given unit, if the additional benefits we realize exceed the additional costs we incur, then consumption of that unit results in a positive net benefit . Net benefits are simply benefits less costs. We typically use explicit monetary costs to represent the costs of consuming a particular unit of a good. The explicit monetary costs of a unit of a good are reflected in the unit price of that good. All units for which there are positive net benefits (marginal benefits in excess of marginal costs) will therefore increase total utility. Since marginal benefits are decreasing in quantity, it is rational to consume up to the point where MB = Price .
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ch5_part_2 - Econ 221 Ch. 5 Part 2: Purchasing Goods to...

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