ECO100Y1 Lecture Notes - Lecture 5: Marginal Utility, Utility
Document Summary
Demand elasticities and the incidence of a tax. Perfectly inelastic dd: buyers completely unresponsive to changes in price, full burden (incidence) of tax in borne by buyers. Seller receives: p1-10=p0-10 (full incidence), in addition, qs , tr . Perfectly elastic dd: buyers very responsive to change in price (quantity demanded falls to zero for any increase in price, full burden (incidence) of tax in borne by sellers. Buyer pays: no tax (infinitely elastic dd) all tax (infinitely inelastic dd) some of tax (usual case) *burden of tax dependent on elasticity of supply and demand. Theory of consumer choice (used to derive law of downward-sloping demand) Mankiw, 6th edition, p472 has a brief discussion on utility theory. Principle of diminishing marginal utility (basically, it is satisfaction) As a person consumes more of a good, the marginal utility of the good declines. Total utility = total satisfaction to a person from consumption of product.
