Available income in the way that maximizes his or her

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
available income in the way that maximizes his or her total utility, given the prices of goods and services A consumer’s total utility is maximized by spending all the available income and equalizing the marginal utility per dollar for all goods Marginal utility per dollar is the marginal utility from a good obtained by spending one more dollar on that good The basic idea behind the utility maximizing rule is to move dollars from good A to good B if doing so increases the utility from good A by more than it decreases the utility from good B If the marginal utility per dollar from good A exceeds the marginal utility per dollar from Good B, then buy more of good A and buy less of good B Conclusion: If marginal gain > marginal loss, then take action. What are predictions of marginal utility theory? See book for example What is the paradox of value? Price of water is low and price of diamond is high, but water is essential to life while diamonds are mostly just for decoration
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern