REAL 1820 Lecture Notes - Lecture 2: Marginal Utility, Marginal Cost, Utility
30 Oct 2017
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Document Summary
Consumption possibilities are limited by your income; this limit is referred to as a budget line. (what you can afford to buy and what you cannot afford to buy) Preferences are the choices in which one makes, of what one likes and dislikes. Preferences are also shown through marginal cost and marginal benefit. The demand curve can also be an approach of understanding how consumers make their buying plans. It is important to remember that consumption possibilities change when income or prices change. A rise in income will leave the slope unchanged but the budget line will shift outwards. However, if the price changes then there will be a change in the slope of the line. Utility (another way of describing preferences) is the benefit or satisfaction a person gets from the consumption of goods and services. Total utility- the benefits a person gains from consumption. For example, if someone watches no movies then there is zero utility.
