ECON 040 Lecture Notes - Lecture 9: Budget Constraint, Marginal Utility, Indifference Curve

• School: College of The Sequoias
• Department: Economics (ECON)
• Course: ECON 040
• Professor: kasun

Document Summary

Utility a set of numerical values that reflect the relative rankings of various bundles of goods. Utility function the relationship between utility measures and every possible bundles of goods: If we only know a consumer"s relative ranking of bundles, the measure of pleasure is ordinal. Tells us the relative ranking of the two things but not how much more one rank is than another (letter grades) A cardinal measure is one by which absolute comparisons between ranks may be made (money) An indifference curve consists of all those bundles that correspond to a particular level of utility. Marginal utility the extra utility that a consumer gets from consuming the last unit of a good. The slope of the utility function as we hold the quantity of the other good constant. As lisa consumes more pizza, holding her consumption of burritos at 10, her total utility increases. And her marginal utility of pizza decreases (though it remains positive)