ECON 2000 Chapter 8: Chapter 8 ECON 2000.docx
23 Apr 2012
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Utility is the benefit or satisfaction that a person gets from the consumption of goods and services. Total utility total satisfaction from all units consumed. The additional satisfaction from additional unit consumed. Diminishing marginal utility: mu positive but decreases as consumption increases. Some things that generate negative marginal utility are hard labour and polluted air. Market demand curves are a horizontal sum of market demand. Value of a good related to total utility, is the maximum a consumer is willing to pay for the good. Price of a good: is what you actually pay (the marginal utility) Given income and prices, consumer equilibrium is when income allocated to maximize tu. If mu/p is not equal for all goods than. Goods can be switched to raise tu. Buy more of good with higher mu and less of good with lower mu. Marginal utility per dollar the mu of a good obtained by spending one more dollar on that good.
