ECON 1B03 Study Guide - Final Guide: Pretz, Budget Constraint, Utility

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Aleksandra Gajic

Document Summary

The first slice he eats gives him great satisfaction. Each subsequent slice he eats, his total satisfaction increases, but each slice doesn"t taste quite as good as the last one. That last slice actually took away from his total satisfaction with the meal. Ivan measures his satisfaction or various amounts of pizza and assigns utils as follows: Consistently positive, but decreasing; each piece added more utils than the previous until 2. After 2, increasing at a decreasing rate diminishing marginal utility. Marginal utility marginal utility, mu = change in tu from consuming one additional unit of a good. Mu is the slope of the total utility function. Notice that after the second slice in the example, we have diminishing mu. Each additional unit of a good consumed adds less to tu than the previous at slice 5, total utility is at a max and marginal utility = 0 where total utility is maxed, mu = 0.