EBE unit 4.1 slides

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Microeconomic Aspects

 Economics = Social Science


 Consumer Behaviour
 Demand Curves
 Utility Theory
1. Understanding Utility: Total and
Marginal
2. Utility Maximization: Equalizing
Marginal Utility per Rand (MU/PA =
MU/PB)
 Def: Satisfaction that person gets from
consumption of goods and services.
 Products are bought because it gives
satisfaction / utility.
 Usefulness
 Measurable (“utils”)
 Comparison between products
 No comparison between consumers
 Def:
Total satisfaction obtained from the
consumption of a product
 Def: The extra satisfaction that is
obtained due to a one unit increase in the
quantity of the product consumed.
 In other words, the change in Total Utility that
results from the consumption of one more unit
Choc Total Marginal MU/P
consumed Utility Utility
0 0 - -
1 54 54 27
2 102 48 24
3 144 42 21
4 180 36 18
5 210 30 15
6 234 24 12
7 252 18 9
8 264 12 6
 Ifa consumer consumes more and more
of a certain product, ceteris paribus, the
marginal utility of that product will
initially rise, reach a maximum and then
decrease.
 Total
utility will reach a maximum where
marginal utility = 0
 Assumption of rationality of consumers
 Optimal utilization of budget
 Restrictions: Income, tastes and
preferences & prices of products
 Maximum satisfaction is obtained from
limited means when:
MU A MU B
=
PA PB

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