ECO200Y1 : Summary notes 1

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12 Sep 2010
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Cardinal measure of utility precise, accurate, numerical measurement: assume one good x, total utility = X: diminishing marginal utility can get too much of a good thing Example: deriving demand: mu drives d diminishing marginal utility leads to a negatively sloped d, constant marginal utility of money constant value everywhere. Consumer surplus: the difference of the value of the commodity and how much the consumer spend on it, consumer surplus comes about because every unit is the same price, but consumers value each unit differently. 2: note the difference is due to the extra area from the triangles. X and y are not related goods. All points with the same level of satisfaction. Assumptions: consumers are able to rank given a and b, they are able to pick the preferred one, transitivity/rational/consistent if a > b > c, then a > c, more is preferred to less .