ECON 103 Chapter Notes - Chapter 6: Conspicuous Consumption, Demand Curve, Giffen Good
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Sunday, March 11, 2018
Economics Chapter 6 Review
Subject
-Utility: The satisfaction that a consumer receives from consuming some good or
service.
-Total Utility: The consumer’s total satisfaction resulting from the consumption of a
given product.
-Marginal Utility: The additional satisfaction obtained from consuming one additional
unit of a product.
-Law of diminishing marginal utility: The utility that any consumer derives from
successive units of a particular product consumed over some time period diminishes
as total consumption of the production increases.
-Total utility rises but marginal utility decreases as consumption increases.
-A utility-maximizing consumer allocates expenditures so that the marginal utility
obtained from the last dollar spent on each product is equal.
-The condition required for a consumer to be maximizing utility, for any pair of products
is, MUx/Px=MUy/Py .That represents a utility-maximizing pattern of
consumption of two goods,
-If we rearrange the marginal utility equation we can get this MUx/MUy=Px/Py .
The right side of this equation is the relative price of the two products (marginal rate
of subsituion). It is determined by the market and is beyonds Alison’s control. She
reacts to these market prices but is powerless to change them. The left side of the
equation is her relative ability of the two products to add to her utility. This is within her
control because in determining the quantities of different products to buy, she also
determines the marginal utility. If the two sides of the equation are not equal, Alison
can increase her total utility by rearranging her purchases of x and y.
-The utility theory is used by economists to predict how consumers will behave when
faced with such events as changing prices and incomes. The theory is an interesting
way of discovering the implication of consumer maximizing behaviour.
-A rise in the price of a product leads each utility maximizing consumer to reduce the
quantity demanded of that product whose price increased.
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Document Summary
Utility: the satisfaction that a consumer receives from consuming some good or service. Total utility: the consumer"s total satisfaction resulting from the consumption of a given product. Marginal utility: the additional satisfaction obtained from consuming one additional unit of a product. Law of diminishing marginal utility: the utility that any consumer derives from successive units of a particular product consumed over some time period diminishes as total consumption of the production increases. Total utility rises but marginal utility decreases as consumption increases. A utility-maximizing consumer allocates expenditures so that the marginal utility obtained from the last dollar spent on each product is equal. The condition required for a consumer to be maximizing utility, for any pair of products is, mux/px=muy/py . that represents a utility-maximizing pattern of consumption of two goods, If we rearrange the marginal utility equation we can get this mux/muy=px/py .