ECN 104 Chapter Notes - Chapter 6: Marginal Utility, Demand Curve, Prospect Theory
Document Summary
Ecn104 chapter 6: consumer choice and utility maximization (textbook notes) Simplest theory of consumer choice rests simply on the law of diminishing marginal utility: added satisfaction declines as a consumer acquires additional units of a product. Utility is the want-satisfying power of a good or service; the satisfaction a person gets from consuming a good or service: three characteristics. May vary widely from person to person. Total utility is the amount of satisfaction derived from the consumption of a single product or combination of products. Marginal utility is the extra utility a consumer obtains from the consumption of one additional unit of a product. The law of diminishing marginal utility explains why the demand curve for a given product slopes downwards. If successive units yield a smaller and smaller amounts of marginal, or extra, utility, then the consumer will buy additional units of a product only if the price falls.