ECON 101 Lecture 19: Econ_101_Lecture_19
Document Summary
Consumer choice: maximizing economics of utility and behavior: Utility theory: water is cheap, and diamonds are costly. Yet life needs water and diamonds don"t. Isn"t it odd even paradoxical that it"s cheap what"s required for life, and costly what isn"t needed. Economist adam smith, of the 18th century, wondered about this issue. Sometimes items that have the highest value in use (or are the most useful) have a fairly low price, he found, and items that have little to no value in use have a high price. Observation by smith came to be known as the diamond-water paradox, or the merit paradox. The paradox confronted economists, and they were looking to find a solution. This section begins the production of sections of the solution they find. Utilities: absolute and marginal: claiming that a good gives you utility is the same as claiming that it has the capacity to fulfill your wishes or please you.
