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Lecture 1
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ECON 1B03- Week 12 November 20, 2018
Module 1
Unit 13.1
Consumer Theory: Utility
Utility
• When consumers consume goods and services, they derive satisfaction (happiness) from
their consumption.
• We call this satisfaction utility.
• We assume that consumers try to maximize their utility (maximize their satisfaction)
from consuming various bundles of goods and services.
• The set of all g&s an individual consumes is their consumption bundle.
• Consuming various amounts of g&s will give different levels of utility.
• A utility function gives the total utility, TU, generated by a consumption bundle.
• To measure utility (an abstract concept) we use units called utils.
• Every individual values consumption bundles differently than others.
• For example, I may get a total utility of 1000 utils from going to 8 Buffalo Bills’ home
games where someone else may only get a total utility of 20 utils
Example:
• Mickey loves pizza. He’s hungry. The first slice he eats gives him great satisfaction.
• The second slice makes him even happier because he’s starting to get full.
• With each subsequent slice he eats, his total satisfaction increases, but each slice
doesn’t taste quite as good as the last one because he’s really starting to get full.
• He gets to the point where the last slice he eats is too much and now he doesn’t feel so
good.
• That last slice actually took away from his total satisfaction with the meal.
• Suppose Mickey measures his satisfaction for various amounts of pizza and assigns utils
as follows:
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