ECON 101 Lecture Notes - Lecture 10: Demand Curve, Marginal Utility

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Factors affecting choice: limited income necessitates choice. One good can be substituted for another. Consumers must make decisions without perfect information, but knowledge and past experience will help. Law of diminishing marginal utility: as the rate of consumption increases, the marginal utility derived from consuming additional units of a good will decline. The height of an individual"s demand curve indicates the maximum price the consumer would be willing to pay for that unit. A consumer willingness to pay for a unit of a good is directly related to the utility derived from consumption of the unit. The law of diminishing marginal utility implies that a consumer"s marginal benefit, and thus the height of their demand curve, falls with the rate of consumption. Each consumer will maximize his/her satisfaction by ensuring the last dollar spent on each commodity yields an equal degree of marginal utility.

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