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Utility Allyson Colangelo

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**Getting the most or your Money**

Is the want satisfying power of a good or service This deters how much an individual is willing to pay for a good or service Based off of tastes and preferences and income

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**Terms Util- measurement of utility**

Utility Analysis- study of decisions based off want satifacation Marginal Utility- change in total utility / change in # of units Normal goods- demand increases as income increases Substitute goods-demands decreases as income increases

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Other things Law of diminishing Marginal Utility- when utility decreases when we have become over satisfied Consumer Optimum- getting the most utility for your money Subsitution effect- product that you use instead of normal good Diamond water Paradox- necessities vs. wants That price is derived from scarcity not necessity Price is derived from Marginal Utility not Total Utility Example: Diamonds are a real world example

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**Who cares? Consumers How much a good or service is worth? Producers**

How much to sell product for ? Government What to tax ?

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# of days 1 day 2 days 3 days 4 days 5 days 6 days 7 days 8 days 9 days 10 days Price $136 $216 $278 $286 $291 $296 $301 $306 $311 $316 $5 $5 $5 $80 $8 $5 $5 $62 $5 Disney used the law of diminishing marginal utility to find its prices for park hopper.

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Consumer surplus S2 Supply $ Dead Weight Loss P1 Q1 Producer Surplus #

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**(a) Define marginal utility. **

2. Utility and price elasticity of demand are important concepts in explaining consumer behavior. (a) Define marginal utility. (b) The table below shows the quantities, prices, and marginal utilities of two goods, fudge and coffee, which Mandy purchases. Inelastic= Positive # Unit Elastic = Zero Fudge Coffee Quantity Of Purchase 10 Pounds 7 Pounds Price Per Pound $2 $4 Marginal Utility of Last Pound 12 20 Elastic = negative # Mandy spends all her money and buys only these two goods. In order to maximize her utility, should Mandy purchase more fudge and less coffee, purchase more coffee and less fudge, or maintain her current consumption? Explain. (c) Assume that consumers always buy 20 units of good R each month regardless of its price. (i) What is the numerical value of the price elasticity of demand for good R? (ii) If the government implements a per-unit tax of $2 on good R, how much of the tax will the seller pay? Elasticity: % change in quantity demanded over % change in price

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Answers (a) The additional amount of satisfaction gain from the consumption of an extra good. (b) She should purchase more fudge and less coffee because her MU for each dollar spent on fudge is greater then her MU for each dollar spent on coffee ( c) (i) the Elasticity is 0 (ii) None of the tax will be paid by the seller only by the buyer

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1. Refer to the table of Antonio's utility for novels and history books. What is Antonio's marginal utility of the 3rd history Book? A. 390 B. 60 C. 320 D. 90 E. 120 2. Refer to Antonio's table of utility data. What is Antonio's marginal utility of the 4th Novel? E. 360 B. 60 C. 40 D. 20 E. 30 3. Refer to Table. The price of history books is $30 each and the price of novels is $20 each. Antonio has $200 of gift certificates for the local bookstore. He intends to purchase a combination of history books and novels. How many history books will he purchase? A. 1 B. 2 C. 3 D. 4 E. 5 F. 6

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**1) D. 90 The difference between the TU 300 and 390 is 90 giving MU **

The difference between TU 360 and 320 is 40 giving MU 3)D.4 4 History Books and 4 Novels gives the highest amount of MU for his money

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