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Example : Consumer consuming bottles of coke

Example : Consumer consuming bottles of coke. Recap On Scarcity and Choice. Recap. b. a. TU. c. b. TU. a. c. 9. x. x. MU. MU. POINT 1. b. TU. a. TU. c. 9. x. MU. MU. POINT 2. TU. MU. POINT 3. TU. b. a. c. x. MU. POINT 4. b. b. TU. TU. a. ∆ U. a. ∆ U.

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Example : Consumer consuming bottles of coke

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  1. Example :Consumer consuming bottles of coke

  2. Recap On Scarcity and Choice

  3. Recap

  4. b a TU c b TU a c 9 x x MU MU

  5. POINT 1 b TU a TU c 9 x MU MU

  6. POINT 2 TU MU

  7. POINT 3 TU b a c x MU

  8. POINT 4 b b TU TU a ∆ U a ∆ U c ∆ Q ∆ Q c 9 x x MU MU

  9. POINT 5 TU b a c x 11/2 MU 1/2

  10. TU = 60Q – 4Q2

  11. People will consume until MU = P Hence when MU > P consumers will increase consumption until MU = P Also when MU < P consumers will decrease consumption until MU = P

  12. A C B D • IMPORTANT POINTS • OACD = Total Utility • OBCD = Total Revenue • ABC = Total Consumer Surplus

  13. A A Price Curve Shifts up C B C B D D O IMPORTANT POINT 1. As the price curve shifts up Q falls ,hence MU curve is also the demand curve. 2. As P rises TCS shrinks and when P goes down TCS rises.

  14. Case of chicken & beef • When we say that chicken gives 3 times the satisfaction of Beef, we are in fact saying: MUc = 3 MUb 1 • & When Chicken costs twice as much as beef : Pc = 2 Pb 1 • Generalizing for X & Y MUx > Px MUy Py The consumer will increase buying X and less Y until MUx = Px MUy Py

  15. Comparing the ratios of their marginal utilities to their prices. MUc > MUb Pc Pb • Spend more on chicken and less on beef; as a result MUc will fall and MUb will rise until MUc = MUb Pc Pb NOTE: This is the same equi–marginal utility principle stated earlier.

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