ECON 1 Lecture Notes - Lecture 10: Revealed Preference, Marginal Utility, Utility
Document Summary
Utility is a measure of the amount of satisfaction a person derives from something. Universal measure (yardstick) that allows individuals to compare choices. Rational individuals maximize utility when making choices. The idea that people"s preferences can be determined by observing their behaviors. Observe what people actually do, the principle of revealed preferences isn"t feasible for analyzing. Utility function aid in systematically analyzing choices. A utility function is a formula for calculating the total utility that a particular person derives from consuming a combination of goods and services (called a bundle of commodities). The change in total utility from consuming an additional unit of a good or service. The utility function and the marginal utility can be plotted. an individual maximizes utility when total utility is greatest or marginal utility is zero. People have many wants and are constrained by the time and money available to them.
