[ECON 2010] - Final Exam Guide - Ultimate 35 pages long Study Guide!
Document Summary
Utility: the satisfaction that a consumer receives from consuming some good or service. Total utility: total satisfaction resulting from the consumption of a given commodity by a consumer. Marginal utility: the additional satisfaction obtained from consuming one additional unit of a commodity. The consumer allocates expenditures so that the marginal utility obtained from the last dollar spent on each product is equal. The condition required for a consumer to be maximizing utility, for any pair of products, is. This formula can be rearranged to gain additional insight into consumer behaviour. The right side of this equation is the relative price of the two goods. It is determined by the market and beyond the consumer"s control. the left side is the relative ability of the two goods to add to the consumers utility. This is within the consumer"s control because in determining the quantities of different goods to buy, they also determine their marginal utilities.