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    Number of Apples Total Utility Marginal Utility

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    Mostafa haque
    The document discusses consumer choice and behaviorial economics. It explains the law of diminishing marginal utility, which states that the marginal utility gained from successive units of consumption declines as more is consumed. It provides an example showing that as apples consumed increases from 1 to 3, total utility increases but marginal utility declines. The document also discusses how the law relates to total and marginal utility and only compares utility for the same person, not between individuals.

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    Number of Apples Total Utility Marginal Utility

    Uploaded by

    Mostafa haque
    23 views8 pages
    The document discusses consumer choice and behaviorial economics. It explains the law of diminishing marginal utility, which states that the marginal utility gained from successive units of consumption declines as more is consumed. It provides an example showing that as apples consumed increases from 1 to 3, total utility increases but marginal utility declines. The document also discusses how the law relates to total and marginal utility and only compares utility for the same person, not between individuals.

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    ECO101 Lec 10

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    The document discusses consumer choice and behaviorial economics. It explains the law of diminishing marginal utility, which states that the marginal utility gained from successive units of consumption declines as more is consumed. It provides an example showing that as apples consumed increases from 1 to 3, total utility increases but marginal utility declines. The document also discusses how the law relates to total and marginal utility and only compares utility for the same person, not between individuals.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    23 views8 pages

    Number of Apples Total Utility Marginal Utility

    Uploaded by

    Mostafa haque
    The document discusses consumer choice and behaviorial economics. It explains the law of diminishing marginal utility, which states that the marginal utility gained from successive units of consumption declines as more is consumed. It provides an example showing that as apples consumed increases from 1 to 3, total utility increases but marginal utility declines. The document also discusses how the law relates to total and marginal utility and only compares utility for the same person, not between individuals.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 8

    CONSUMER CHOICE: MAXIMIZING

    UTILITY AND BEHAVIOURAL ECONOMICS


    EXAMPLE
    Number of Apples Total Utility Marginal Utility
    1 10 10
    2 19 9
    3 27 8

    30
    25
    20
    15 Total Utility
    Marginal Utility
    10
    5
    0
    1 2 3
    LAW OF DIMINISHING MARGINAL
    UTILITY
    The law of Diminishing Marginal Utility states that for a
    given time period, the marginal utility gained by
    consuming equal successive units of a good will decline
    as the amount consumed increases.

     In other words, the number of utils gained by consuming


    the second unit (which is greater than the number gained
    by the third, which is greater than the number gained by
    the fourth, and so on)

     Total utility increases and marginal utility falls


    TOTAL UTILITY, MARGINAL UTILITY,
    AND THE LAW OF DIMINISHING
    UTILITY
    LAW OF DIMINISHING MARGINAL
    UTILITY (CONT)
     The law of diminishing marginal utility is based on the
    idea that if a good has a variety of uses but only one unit
    of the good is available, then the consumer will use the
    first unit to satisfy his or her most urgent want.

     Note: The law only talks about comparing the same


    person’s utility of consuming successive units of a good.
    It does not compare or allow for comparison between
    different people.
    THE MILLIONAIRE AND THE PAUPER:
    WHAT THE LAW SAYS AND DOESN’T
    SAY
     Who gets more utility from one more dollar, a poor man
    or a millionaire?

     Interpersonal Utility Comparison: Comparing the utility


    from a good, service or activity with the utility another
    person receives from the same good, service or activity.

     The utility obtained by one person cannot be


    scientifically or objectively compared with the utility
    obtained from the same thing by another person because
    utility is subjective.
    CONSUMER EQUILIBRIUM AND
    DEMAND
     What does consumer or individual aim to maximize by
    consuming goods and services given the constraints of
    positive prices and budget?
    Equating Marginal Utilities per Dollar
     Suppose we have the following information:

    Quantity Marginal Price Marginal Utility per


    Utility Dollar ()

    Oranges 10 30 $1 30

    Apples 10 20 $1 20
    CONSUMER EQUILIBRIUM AND
    DEMAND
      

     What would you do as a consumer?


     A consumer is in equilibrium when he derives the same
    marginal utility per dollar for all goods.

     Consumer Equilibrium: Equilibrium occurs when the


    consumer has spent all income and the marginal utilities
    per dollar spend on each good purchased are equal.

     At consumer equilibrium, TU is maximized.


    MAXIMIZING UTILITY AND THE LAW OF
    DEMAND
     Given the equilibrium condition and price of oranges
    falls, what happens to this condition?

     Utility Maximization is consistent with the law of


    demand.

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