1. Mr. Bernstein Module 51: Utility Maximization September 8, 2014
AP Economics
Mr. Bernstein
Module 51:
Utility Maximization
September 8, 2014

2. AP Economics Mr. Bernstein
Utility Maximization
Consumers make choices about purchasing goods and services
Consumers goal is to maximize utility, or happiness
Utility is a measure of satisfaction gained from consuming a good or service
Can you really measure utility? Maybe not, but consumers know it when they make decisions

3. AP Economics Mr. Bernstein
Utility Maximization
The principle of diminishing Marginal Utility (MU) applies to consumption of most goods and services. Example: Burgers??
Consumers face budget constraints and purchase the bundle which maximizes Total Utility (TU)
Marginal analysis allows us to find optimal consumption bundles
Note: If Marginal Utility (MU) is declining but still positive, Total Utility (TU) is rising and that unit of the good should be consumed
Consumers should continue spending on a good until the MU of each good is equal. Why?

4. AP Economics Mr. Bernstein
Marginal Utility per $ graph

5. AP Economics Mr. Bernstein
Marginal Utility per $ table

6. AP Economics Mr. Bernstein
Budgets and Optimal Consumption Bundle
Point C is unaffordable. Point A is not optimal.
$25 each B A C
$10 each