Ch 7 Utility and Preferences

Ch 7 Utility and Preferences - Consumer Choice and Utility...

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Consumer Choice and Utility Chapter 7 1
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Utility Preferences : determine the benefits or satisfaction a person receives consuming a good or service Utility : the benefit or satisfaction from consuming the good or service, measured in utils Total Utility : the total benefit that a person gets from the consumption of all the different goods 2
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Marginal Utility Marginal Utility: is the change in total utility that results from a one-unit increase in the quantity of a good consumed Diminishing Marginal Utility [Principle of]: the tendency of the marginal utility to 3
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The Question How do I maximize my utility subject to my income? Budget Constraint 2 goods (hot chocolate and donuts) I = 20 = Income Q H = quantity of hot chocolate Q D = quantity of donuts P H = 2 = price of hot chocolate 4
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Budget Line Income ≥ hot chocolate expenditure + donut expenditure I PH*QH + PD*QD The budget line describes the limits of consumption possibilities given income level and prices 5 expenditure on hot chocolate expenditure on donuts
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This note was uploaded on 02/23/2012 for the course ECONOMICS 251 taught by Professor Kelly during the Summer '11 term at Purdue University.

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Ch 7 Utility and Preferences - Consumer Choice and Utility...

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