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© 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

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

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

© 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