ECON 1900 Chapter Notes - Chapter 5: Marginal Utility, Budget Constraint, Demand Curve
Document Summary
5. 1 a closer look at the law of demand. 2002 mcgraw-hill ryerson ltd: total vs marginal utility. Marginal utility: extra satisfaction from consuming one more unit: law of diminishing marginal utility. Gains in satisfaction decline as additional units are consumed. Total utility010203040012345678quantitytotal utilitymarginal utility-5051015012345678quantitymarginal utilitiytotal and marginal utility. Total utility010203040012345678quantitytotal utilitymarginal utility-5051015012345678quantitymarginal utilitiymarginal utility, demand & elasticity: if marginal utility falls rapidly for each successive unit , it will take a considerable drop in price to cause an increase in quantity demanded , so demand is fairly inelastic. Assumptions for a typical consumer. : exhibits rational behavior, knows clear-cut preferences, is subject to a budget constraint, responds to price changes. First, put the marginal utilities into a per- dollar-spent basis: decision-making process: at each step, spend where the marginal utility per dollar is highest until income is exhausted. Product a p= product b p= unit of product. Product a p= product b p= marginal utility.
