Homoeconomicus_on_Utility - 1 Microeconomics Handout:...

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1 Microeconomics   Handout: Utility and Demand Dear Dr. Homoeconomicus: In Microeconomics we've been getting into this seriously abstract theoretical stuff and I've been wondering about this marginal utility thing, total utility thing, and what in tarnation they have to do with one another, let alone with what they have to do with demand. Like, this demand concept is easy: of course people buy more of something when the price is low than when the price is high because they can, like duh! But what does this utility thing have to do with it? Humbly Yours, Purr plexed Dear Purr plexed: The objective of economics is to explain why people purchase more of something when the price is low than when it is high. To perceive is easy, to understand -- explain a process using reason-- is more difficult. Indeed, this is what separtes humans from animals! The essentiality of this distinction may be illuminated by a short story. In 1870 the English economist Stanley Jevons, while reading The Psychologist Today , found an article describing an instrument that could be used to measure utility, the expected satisfaction obtained from consuming something. Using the utilimeter psychologists discovered an interesting property associated with consuming things: They discovered that, in general, the more we consume of something the more satisfaction we get. For instance, after a long hard day of work in the coal mines near Sheffield, a person becomes quite thirsty. A cold beverage helps quench that thirst. Multiple cold beverages quench it even more. The more cold beverages, the more quenching, and so on. The psychologists were very excited about this discovery and immediately began to consider how it might solve mysteries about the id, the ego, and how each might be expressed in sexually oriented dream sequences. Now Jevons wasn't concerned with the psychological applications, especially the latter as he was an economist (economists do it with tables of numbers, equations and graphs), i.e, they are human unlike. .. Rather, he wanted to resolve the diamond-water paradox and become totally famous. So, he purchased a utilimeter (mail ordered to avoid an 8% sales tax) and began experimenting. He would attach the utilimeter to his microeconomics' students, then gorge them with tea and crumpets (Brits have a clear disdain for beer and brats). In the process he made a startling discovery: while each additional unit of tea and crumpets
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Homoeconomicus_on_Utility - 1 Microeconomics Handout:...

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