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Economics (14)
01:220:102 (14)
Chapter 10


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Rutgers University
Thomas Prusa

Chapter 10 – The Rational Consumer Utility: Getting Satisfaction Utility and Consumption  Utility of a consumer is a measure of the satisfaction the consumer derives from consumption of goods and services o Measured in units of utils  Consumers try to maximize their utility  Individual’s consumption bundle- collection of all the goods and services consumed by that individual o To maximize utility, consumer considers the marginal utility form consuming one more unit of a good or service, illustrated by marginal utility curve  Individual’s utility function- gives the total utility generated by his or her consumption bundle The Principle of Diminishing Marginal Utility  Marginal utility of a good or service- change in total utility generated by consuming one additional unit of that good or service  Marginal utility curve shows how marginal utility depends on the quantity of a good or service consumer  Principle of diminishing marginal utility- each successive unit of a good or service consumed adds less to total utility than the previous unit Budgets and Optimal Consumption Budget Constraints and Budget Lines  Budget constraint requires that the cost of a consumer’s consumption bundle be no more than the consumer’s income  Consumer’s consumption possibilities- set of all consumption bundles that can be consumed given the consumer’s income and prevailing prices  Consumer’s budget line shows the consumption bundles available to a consumer who spends all of his or her income o Slopes downward because the consumer must consume less of one good in order to consume more of another Optimal Consumption Choice  Consumer’s optimal consumption bundle- consumption bundle that maximizes the consume
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