ECON 101 Chapter Notes - Chapter 6: Conspicuous Consumption, Real Income, Normal Good
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ECON 101 Full Course Notes
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Economists assume that consumers are motivated to maximize utility. Total utility: the full satisfaction resulting from the consumption of that by a consumer. Marginal utility: the additional satisfaction from consuming one more unit of a product. Law of diminishing marginal utility: utility from a consumed good that diminishes over time as the total consumption of the product increases: as more products are consumed, marginal utility decreases and total utility increases. Consumers attempt to maximize total utility, particularly income and market prices of products. To maximize utility with two products, the marginal utility of the last x consumed must equal the marginal utility of the last y consumed. A utility maximizing consumer allocates expenditure so that the utility obtained from the last dollar spent on each product is equal. Utility is maximized when marginal utility per dollar of good x = y.