ECON 208 Lecture Notes - Lecture 5: Ceteris Paribus, Marginal Utility, Utility
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ECON 208 Full Course Notes
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Document Summary
Utility: the total satisfaction that they derive from the goods and services that they consume. Total utility: the full satisfaction resulting from the consumption of some product by a customer. Marginal utility: additional satisfaction resulting from consuming one more unit (each additional quantity) of the same product. Ceteris paribus, the utility that any consumer derives from successive units of a particular product, is assumed to diminish as total consumption of the product increases. E. g. marginal utility falls as the level of consumption rises. Important assumption to be able to compare total and marginal utility. Individuals can compare the utility from different actions: shape of the marginal utility = shape of the demand curve, marginal utility is the slope of the total utility function. Consumers must decide how to adjust their expenditure to maximize total utility. A utility-maximising consumer allocates expenditures so that the utility obtained from the last dollar spent on each product is equal.