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ECN104 - Ch 6 Notes.docx

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ECN 104
Thomas Barbiero

ECN 104 – Chapter 6 Notes 6.1 Law of Diminishing Marginal Utility gains in satisfaction decline as additional units are consumed terminology utility: want-satisfying power total utility: total amount of satisfaction marginal utility: extra satisfaction from consuming one more unit disutility: opposite of utility (not satisfied) Marginal Utility & Demand diminishing marginal utility provides a sample rational of the law of demand successive units of a good yield smaller amounts of marginal utility consumer buy additional units only if prices fall marginal utility decreases rapidly for each successive unit it will take a considerable decrease in price to cause increase in demand demand is elastic 6.2 The Theory of Consumer Choice Typical Consumer exhibits rational behaviours – get most for least amount of $ (max satisfaction) has clear cut preference – knows how much satisfaction is acquired from additional unit subject to budget constraint respond to price changes – each tries to max satisfaction Utility-Maximizing Rule Utility Maximization spend where MU/$ is highest if MU/$ = unequal, spending should be allocated award from good where MU/$ = low toward good when MU/$ = high Utility Maximization and the Demand Curv
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