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Law of diminishing marginal utility
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This is the principle that states that every added satisfaction declines as a consumer acquires additional units of a given product.
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utils
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People can measure satisfaction with these units
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Total Utility
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is the total amount of satisfaction or pleasure a person derives from consuming some specific quantity.
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Marginal Utility
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is the extra satisfaction a consumer realizes from an additional unit of that product.
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The demand curve for a given product (law of diminishing marginal utility)
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slopes downward
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Diminishing marginal utility supports the idea that if price must decrease in order for
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quantity demanded to increase
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Rational behavior
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consumers want to get the most of their money by maximizing their total utility
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Budget Constraint
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The limit that the size of a consumer's income imposes on the ability of that consumer to obtain goods and services
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Utility maximizing rule
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To maximize satisfaction the consumer should allocate his/her money income so that the last dollar spent on each product yields the same amount of extra utility.
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Consumer equilibrium
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When the consumer has "balanced his margins" using the utility maximizing rule
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If total utility is increasing, then marginal utility is
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either increasing or decreasing
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In deciding what to buy , the consumer will choose the good with the
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highest marginal utility to price ratio
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Marginal Utility is positive, but declining, when total utility is positive and
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rising at a decreasing rate
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A budget constraint is faced by
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all consumers
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