ECO 1104 Lecture Notes - Lecture 7: Marginal Utility, Budget Constraint, Revealed Preference
13 Mar 2019
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Utility basics : utility is a measure of the amount of satisfaction (dissatisfaction) a person derives from something: Universal measure (or yardstick) that allows individuals to compare choices. Not typically comparable across individuals (people get different utility from different things) The principle of revealed preference: people"s preferences can be determined by observing their choices and behaviour. Unique to a specific choice of a particular person at one date. Utility functions: they aid is systematically analyzing choices. It is a formula for calculating the total utility that a particular person derives from consuming a combination of goods and services. Bundle : a unique combo of goods and services that a person could choose to consume. For example, suppose an individual receives a utility of 3 for each serving of meat she eats, 2 for broccoli and 8 for ice cream. If she eats 1 serving of meat, 2 servings of broccoli, and 2 of ice cream, then:
