Textbook Notes (368,313)
Canada (161,808)
Economics (385)
ECO100Y5 (290)
Michael H O (131)
Chapter 6

ECO100Y5Y Chapter 6 Notes.docx

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Michael H O

Chapter 6 Notes - Utility; satisfaction that consumer receives from consuming good/service - Total Utility; total satisfaction resulting from consumption of given commodity by consumer - Marginal Utility; additional satisfaction obtained from consuming one additional unit of commodity - Diminishing Marginal Utility; often called law of diminishing marginal utility o Utility any consumer derives from successive unites of particular product consumed over period of time diminish as total consumption of product increases - As consumption increases, total utility rises, and marginal utility falls - Consumers seek to maximize their total utility - Utility maximizing consumer allocates expenditures so marginal utility obtained from last dollar spent on each product is equal - Increase in Quantity = decrease in marginal utility - Condition for consumer to maximize utility, for any pair of products o MU xP =xMU /P y y - When condition is met for all goods, consumer cannot increase utility further - Relative price of two goods o Determined by market, beyond consumer’s control o Left side is relative ability of two goods to add to consumer’s utility o MU x MU = y /P x y Consumer’s Demand Curve - MUx/MUy < Px/Py - As consumer purchases less of X, marginal utility of x will rise and increase ration on left side - A rise in price of product (other determinants constant) leads each consumer to reduce QD of product Market Demand Curve - Market demand curve is horizontal sum of individual demand curves Income and Substitution Effects of Price Changes - Real income; income expressed in terms of purchasing power of money income – quantity of goods/services that can be purchased
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