Download presentation
Published byBetty Sheryl Todd Modified over 9 years ago
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
Similar presentations
© 2024 SlidePlayer.com Inc.
All rights reserved.