ECO101H1 Lecture : -- Utility Theory -- Indifference Curve (not required) 2. Principle of Diminishing Marginal Utility 3. Consumers seek to maximize utility, subject to budget control -- Optimizing Rule; -- Exa

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16 Oct 2011
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ECO101H1 Full Course Notes
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ECO101H1 Full Course Notes
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Topic 6 consumer demand theory (week six oct 13th oct 18th) - indifference curve (not required: principle of diminishing marginal utility, consumers seek to maximize utility, subject to budget control. - implication: why demand curve slopes downward: consumer surplus. - willingness to pay & steplike demand curve; - linear demand curves: producer surplus, allocative efficiency, what consumers and producers would pay to keep a market open; Total utility: total satisfaction a person receives from consumption of goods; Marginal utility: additional satisfaction (change in total utility) from consumption of one more unit of the product; As a person consumes more of a good, the marginal utility of the good declines. Observation: tu increases with additional consumption, but at a decreasing rate, mu decreases with additional consumption; Assume consumers are rational, consumers seek to maximize total utility (satisfaction), given their budget constraints: optimizing rule. Mux/px=muy/py for all consumed goods, x and y: example: optimal consumption.

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