# Sum of utility derived from all units consumed the

• 27

This preview shows page 7 - 16 out of 27 pages.

Sum of utility derived from all units consumed. _______________________: The additional satisfaction obtained from consuming one, or multiple, additional unit(s) of a commodity.
Principles of Microeconomics Diminishing Marginal Utility ________________________________: The utility that any consumer derives from successive units of a particular product consumed over some period of time diminishes as total consumption of the product increases. (Holding constant the consumption of all other products.) Increase in consumption of a good increases utility Size of utility increase decreases as you consume more of the good Low total consumption High total consumption Utility of a can of coke
Principles of Microeconomics Graphing Utility: Coke
Principles of Microeconomics UTILITY MAXIMIZATION
Principles of Microeconomics For every coke consumed, __________________________ If a consumer buys 5 cokes: What does he/she gain in utility? What does he/she give up? ____________________________: Hamburgers Hotdogs Coffee _______________________________________ Utility Maximization Given the utility curve for coke, why would an utility maximizing consumer not buy more and more coke?
Principles of Microeconomics Utility Maximization Example Combination Cokes TU Cokes MU Cokes Burgers A 0 0 - B 1 30 30 C 2 50 20 D 3 65 15 E 4 75 10 F 5 83 8 G 6 89 6 H 7 93 4 I 8 96 3 J 9 98 2 K 10 99 1 Budget: P Coke : P Burger : Suppose Allison has \$30 per week, and can buy only cokes and burgers. Given the prices of burgers and cokes listed above, identify all of the combinations that are available to Allison on a weekly basis.
Principles of Microeconomics UTILITY MAXIMIZATION RULE
Principles of Microeconomics Utility Maximization Rule: The utility-maximizing consumer allocates expenditures so that the marginal utility obtained from the last dollar spent on each product is equal. Why? MU X = MU Y P X P Y
Principles of Microeconomics Utility Maximization Example Cokes TU Cokes MU Cokes MU Cokes /P Cokes Burgers TU Burgers MU Burgers MU Burgers /P Burgers 0 0 - - 0 0 - - 1 30 30 10 1 30 30 10 2 50 20 6.67 2 50 20 6.67 3 65 15 5 3 65 15 5 4 75 10 3.33 4 75 10 3.33 5 83 8 2.67 5 83 8 2.67 6 89 6 2 6 89 6 2 7 93 4 1.33 7 93 4 1.33 8 96 3 1 8 96 3 1 9 98 2 0.67 9 98 2 0.67 10 99 1 0.33 10 99 1 0.33 Budget: \$30 per week P Coke : \$3/coke P Burger : \$3/burger