-Rolling Stones “I CANT GET NO… UTILITY?”

 Utility  Way we measure satisfaction, it can factor out our emotions and subjective feelings  Consumers “produce” utility  Utils – way we measure utility, or satisfaction  Can focus on total utility, or marginal utility – how much satisfaction I get from consuming ONE more good UTILITY MAXIMIZATION

 Do some goods have INCREASING marginal utilities?  Yes, but only a few good examples exist?  Berry-picking – Alfred Marshall  Coffee  Wallpaper?  But, most that people consumer have a diminishing marginal utility UTILITY MAXIMIZATION

 Budgets and Optimal Consumption  Referring to opportunity cost!  Decision to consumer more of a good is also a decision to consumer less of another good  Factor in consumption  Budget constraint – consumers always have limited income  What about debt? UTILITY MAXIMIZATION

 Consumption possibilities  Affordable bundles of goods one can consume within their budget  Often, an optimal combination of goods is desired  You don’t want ONLY one good when you shop for groceries  Budget Line – If you spend all your income, what combination of goods can you purchase?  Purchases < Total income UTILITY MAXIMIZATION

 Optimal Consumption Bundles  Comparing consumption bundles, and utils of a specific combination of goods  Can you maximize your satisfaction? UTILITY MAXIMIZATION

 Marginal Utility Per Dollar  One final question:  What happens (talking about utility) when you spend ONE EXTRA dollar on a good?  Does utility increases? Decrease?  Use this concept to gauge whether we should spend more money or not UTILITY MAXIMIZATION

 Marginal Utility per Dollar MU good = MU dollar price of good  This is important because it can be used to determine OPTIMAL CONSUMPTION  If the MU of a dollar is higher when spent on Good A, rather than B, we can figure out how to increase our utility by spending ONE LESS dollar on B and one more on A UTILITY MAXIMIZATION