question
How do economics define utility
answer
It includes satisfaction, pleasure, enjoyment, value, etc.
It measures the satisfaction or enjoyment a person obtains from consuming a good.
The unit measure is a util.
-Util is a hypothetical unit.
It measures the satisfaction or enjoyment a person obtains from consuming a good.
The unit measure is a util.
-Util is a hypothetical unit.
question
What is marginal utility (MU)
answer
Measures the change in total utility a person derives from consuming an additional unit of the good.
MU = (Change in TU)/(Change in Q)
Can be negative.
-Example - That last piece of pizza that killed you brought you negative utility.
-A rational consumer will not knowingly pay to buy a unit of a good that generates negative marginal utility.
-Something else could be bought that generates positive marginal utility.
-Utility maximization - Buying something that generates negative marginal utility is not consistent with this.
-Total utility - TU
--Is the total number of "utils" a person derives from consuming a specific quantity of a good.
MU = (Change in TU)/(Change in Q)
Can be negative.
-Example - That last piece of pizza that killed you brought you negative utility.
-A rational consumer will not knowingly pay to buy a unit of a good that generates negative marginal utility.
-Something else could be bought that generates positive marginal utility.
-Utility maximization - Buying something that generates negative marginal utility is not consistent with this.
-Total utility - TU
--Is the total number of "utils" a person derives from consuming a specific quantity of a good.
question
What is the law of diminishing marginal utility?
answer
As more of a good is consumed, the utility of a person derives from each additional unit diminishes.
-Utility:
--Satisfaction
--Pleasure
--Enjoyment
--Value
--Etc.
--Measures the satisfaction or enjoyment a person obtains from consuming a good.
---The unit of measure is a util.
How much people value a good depends on the utility they derive from the last one consumed.
-Example - The diamond-water paradox
--Market price reflects marginal utility, not total utility.
Marginal utility - MU
-Measures the change in total utility a person derives from consuming an additional unit of the good.
Total utility - TU
-Is the total number of 'utils" a person derives from consuming a specific quantity of a good.
Due to diminishing marginal utility and the abundance of water, the marginal utility of water id lower than for diamonds (scarce).
Hypothetical: If you are lost in the desert and are severely dehydrated, then your marginal utility for a gallon of water might exceed your marginal utility for a diamond.
-Utility:
--Satisfaction
--Pleasure
--Enjoyment
--Value
--Etc.
--Measures the satisfaction or enjoyment a person obtains from consuming a good.
---The unit of measure is a util.
How much people value a good depends on the utility they derive from the last one consumed.
-Example - The diamond-water paradox
--Market price reflects marginal utility, not total utility.
Marginal utility - MU
-Measures the change in total utility a person derives from consuming an additional unit of the good.
Total utility - TU
-Is the total number of 'utils" a person derives from consuming a specific quantity of a good.
Due to diminishing marginal utility and the abundance of water, the marginal utility of water id lower than for diamonds (scarce).
Hypothetical: If you are lost in the desert and are severely dehydrated, then your marginal utility for a gallon of water might exceed your marginal utility for a diamond.
question
Marginal utility equals zero when total utility is:
answer
Maximized
question
According to the water-diamond paradox, how much people value a good depends on:
answer
The utility they derive from the last one consumed.
question
Explain the relationship between French cuisine and marginal utility.
answer
Marginal utility decreases with each additional French cuisines consumed.
question
What does the MU/P ratio represent?
answer
The marginal-utility-to-price ratio.
It is an equalization principle.
It is based on consumer behavior.
It is an equalization principle.
It is based on consumer behavior.
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