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Lecture 1

ECON 1B03 Lecture Notes - Lecture 1: Utility

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Hannah Holmes

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ECON 1B03- Week 12 November 20, 2018
Module 1
Unit 13.1
Consumer Theory: 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
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
doesnt 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
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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