ECO100Y1 Chapter Notes - Chapter 5: Marginal Utility, Economic Surplus, Demand Curve
Document Summary
Utility: pleasure derived from a consumption of a product. Marginal utility: additional pleasure derived from consuming another unit of a product. You can never compare utilities between people. Law of diminishing marginal utility: the amount of mu decreases as successive units of the same product are consumed. At some point, the mu will become negative. Mu that goes below zero, become when mu is less than 0, your tu decreases. Total utility is at maximum when mu is 0. Conditions: rational consumer, aim is to maximize tu, consumption made in a short period of time, some items need to be bought in set to get proper mu (car tires) When you have a limited income, you need to make choices to maximize your tu with the budget you have. You need to find mu and find the combination which gives you the highest tu. When you have different prices, you can"t directly compare the products.
