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Marginal Utility & Consumer Choice:

Chapter 5. Marginal Utility & Consumer Choice:. “I’ve been rich and I’ve been poor, and believe me, it’s better being rich” --- Sophie Tucker, a 1920s night club entertainer. “Money can’t buy happiness”. Utility:. The satisfaction or enjoyment a person obtains from consuming a good.

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Marginal Utility & Consumer Choice:

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  1. Chapter 5 Marginal Utility & Consumer Choice:

  2. “I’ve been rich and I’ve been poor, and believe me, it’s better being rich” --- Sophie Tucker, a 1920s night club entertainer. “Money can’t buy happiness”

  3. Utility: The satisfaction or enjoyment a person obtains from consuming a good. Util: A hypothetical unit used to measure how much utility a person obtains from consuming a good.

  4. This is the utility a person receives from consuming each individual unit. Marginal Utility: The change in total utility a person derives from consuming an additional unit of a good. Total Utility: The total number of utils a person derives from consuming a specific quantity of a good.

  5. Law of Diminishing Marginal Utility: The idea that as more of a good is consumed, the utility a person derives from each additional unit diminishes.

  6. Total and Marginal Utility

  7. Water-Diamond Paradox: How much people value a good depends upon the utils they derive from the last unit consumed.

  8. Making selection from a given budget:

  9. Making selection from a given budget:

  10. 20% Sale on Clothing:

  11. 50% Sale on Clothing:

  12. MU/P Equalization Principle:

  13. Consumer Surplus: The difference between the maximum amount a person would be willing to pay for a good or service and the amount the person actually pays.

  14. Price 10 8 6 3 D 1 2 3 Quantity

  15. Price 3 D Quantity

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