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Utility and Demand

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University of Guelph
ECON 1050

Lecture 11 and 12 ECON1050 Page 1 An Interesting Point Marginal utility is MICROECONOMICS essentially marginal Utility and Demand benefitFocusdescribe preferences using the concept of utilitypredict the effects of price and income changes using marginal utility theoryunderstand the conditions under which consumers make choicesIntroductionutility benefit or satisfaction resulting from consuming a good or service the extent to which a product solves a consumers problem o problem causes a search for a productpreference usefulness of a product based on household values total utility total benefit received from the consumption of goods o consumption leads to total utilitymarginal utility change in total utility that results from a oneunit increase in consumption of a good o Principle of Diminihsing Marginal Utility consumption leads to marginal utilitytotal utility is an upwardsloping curve with everdecreasing slopemarginal utility is a downwardsloping curve with everdecreasing slopemarginal utility theory assumption that the household chooses the consumption possibility that maximizes total utilityMaximizing Utilityconsumer equilibrium optimum consumption choice that maximizes total utility and can be afforded by the consumer o marginal utility per dollar must be the same for all goodsMUPMUP 1122 no longer possible to reallocate the budget and increase total utility o all available income must be spent o represented by the point where a budget curve intersects a utility curve Important Noteindifference curves combination of goods X vs Ywould Utility curves are rather be on a higher indifference curve more of both goods unique tobudget curves goods vs pricecombinations of goods that can individuals they be affordedthe only way we can get to a new indifference curve are influenced by is for the budget curve usually a line to change change in personal income or change in the price of one or both of the goods in preferences and question valueswhen the price of one good changes the budget curve rotates outwards it doesnt shift it rotatesthe intercept one of them remains the same but the slope changesPQPQ XXYY
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