Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
by:
Romano G. Lavilla, PhD
Law of Diminishing Marginal Utility
Law of diminishing marginal utility
As consumption of a good or
service increases, the marginal
utility obtained from each
additional unit of a good or service
decreases
Total and Marginal Utility from Cups of Caffuccino
Consumed per Day
(measured in utils)
• Utility is the satisfaction one gets from
consuming a good or service
• Not the same as usefulness
• Subjective
• Difficult to quantify
Total Utility and Marginal Utility
•Rationalbehavior
•Preferences
•Budget constraint
•Prices
Utility Maximizing Rule
•Consumer equilibrium
•Consumer allocates his or her income so that the
last dollar spent on each product yields the same
amount of extra (marginal) utility
•Algebraically,
The utility-maximizing combination of apples
and oranges obtainable with an income of $10
Income and Substitution Effects
•Income effect
•The impact a price change has on a consumer’s
real income
•Substitution effect
•The impact a price change on a product’s
relative expensiveness
Applications and Extensions
New products
iPad
Diamond-water paradox
Opportunity cost and time
Medical care purchases
Cash and noncash gifts
Indifference Curve Analysis