MATH 133 Lecture Notes - Lecture 6: Ceteris Paribus, Negative Number, Normal Good
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MATH 133 Full Course Notes
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When a person makes a choice, we assume they are trying to maximize their utility (happiness) In economics, we are trying to put numbers on said happiness. When a firm makes a choice, we assume that they are trying to maximize their profits. Ceteris paribus - the utility that any consumer derives from successive units of a particular product, is assumed to diminish as a total consumption of the product increases. The total happiness is increasing, but the amount of happiness added each time is decreasing. (the item has less of an effect on you as you have the same thing multiple times). A negative marginal utility is possible, and in that case, the total utility will fall because of the negative number. A utility-maximizing consumer allocates expenditures so that the utility obtained from the last dollar spent on each product is equal.