01:220:102 Lecture Notes - Lecture 6: Marginal Utility, Economic Surplus, Demand Curve
1. Basic Concepts
1. Consumer Choice
1. Law of diminishing marginal utility
2. Consumer Surplus
1. The price in the market would favor consumers who placed a higher
value on a product than the market price paid by all consumers
2. The Basic Tenets of the Theory of Consumer Choice
1. The Consumer is Rational
1. The consumer wants to get the most satisfaction (utility) for the money
spent on goods
2. The Consumer Can Rank Goods
1. In order of preference
3. The Consumer Understands Diminishing Marginal Utility
1. Marginal utility
1. the addition to total satisfaction
2.
3. Diminishing marginal utility
1. at some point in the consumption pattern of a good, each
additional unit consumer yields less satisfaction (utility)
4. The Consumer Faces Constraints of Prices and Incomes
5. The Utility-Maximizing Rule
1. The consumer wants to obtain as much extra satisfaction for one
good per its price as will be obtained from any other good per its
price, given the amount of income available
2. Equilibrium
1. MUA = MUB = MUC = …
PA PB PC
2. MU – maximum utility
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01:220:102 Full Course Notes
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