1. © 2012 McGraw-Hill Ryerson Limited
CHAPTER 5
Consumer Choice
LO1: Explain the law of diminishing marginal utility
LO2: Derive a consumers’ purchasing rule which ensures that satisfaction is maximized
LO3: Explain how marginal utility theory is applicable to real-world examples
LO4: Provide a theoretical rationale for downward sloping demand curves
© 2012 McGraw-Hill Ryerson Limited

2. Marginal Utility and Demand
LO4
Marginal Utility and Demand
Akio’s Dollar Marginal Utility Demand Curve, Derived
Quantity Consumed
$MU 1 $8 2 5 3 4 6 7
Price
Quantity Demanded
$10 9 8 1 7 6 5 2 4 3
© 2012 McGraw-Hill Ryerson Limited

3. Marginal Utility and Demand
LO4
Marginal Utility and Demand
© 2012 McGraw-Hill Ryerson Limited

4. © 2012 McGraw-Hill Ryerson Limited
LO4
Diamond Water Paradox
Why is water (which has a very high value in use) inexpensive, while diamonds (which have a low value in use) expensive?
Value in use is reflected in the total utility of a product
Value in exchange (the price) is determined by its marginal utility.
© 2012 McGraw-Hill Ryerson Limited