ECON 208 Chapter Notes - Chapter 6: Economic Surplus, Demand Curve, Giffen Good
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ECON 208 Full Course Notes
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Total utility is the satisfaction that consumer receives form consuming some good or services. Marginal utility the additional satisfaction obtained from consuming one additional unit of a commodity. The utility that any consumer derives from successive units of particular product consumed over some period of time diminishes as total consumption of the product increases. A utility maximizing consumer allocates expenditure so that the marginal utility obtained form the last dollar spent on each product is equal. If the marginal utility is negative, total utility is decreasing. A rise in the price of a product leads each consumer to reduce the quantity demanded of that product. Real income is expresses in terms of the purchasing power of money income-that is, the quantity of goods and services that can be produced with the money income. Substitution effect is the change in the quantity of a goods demanded resulting from a change in its relative price (holding real income constant)