ECN 104 Lecture Notes - Lecture 6: Cd Player, Marginal Utility, Budget Constraint
24 Mar 2016
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Exploration of behavioural economics and prospect theory will provide a better understanding of these kinds of decisions. Law of diminishing marginal utility: although consumer wants in general are insatiable, wants for specific commodities can be fulfilled. The more of a specific product that consumers obtain, the less they will desire more units of that product. This can be illustrated with almost any item. In a short period of time, the marginal utility derived from successive units of a given product will decline. If more than six tacos were purchased, total utility would begin to fall. Even if the marginal utility of the second unit of soda is low in the short run, the long shelf life would allow people to keep sodas for later consumption. Thus, consumers face a budget constraint. (as we saw with the individual budget line in. Chapter 1: goods and services have prices and are scarce relative to the demand for them.
