1. Consumer Choice & Utility Maximization

2. The Law of “LESS & LESS” “ADDITIONAL” “SATISFACTION”
You haven’t had anything to eat for the past 3 days, and burrito is your FAVORITE food, what would you feel when you finally eat…

3. # of Times Watching Movie Would you see the same movie three times?
Thinking at the Margin
# of Times Watching Movie
Marginal Utility
Price $
1st
$30
$10
2nd
$15
3rd $5
Total
$50
<
Would you see the same movie three times?
Notice that the total benefit is more than the total cost but you would NOT watch the same movie the 3rd time.

4. Calculate Marginal Utility
You will continue to consume until Marginal Utility = Marginal Cost
# of Slices of Pizza
Total Utility
Marginal Utility /
Marginal Benefit
Marginal Cost $2 1 8 2 14 6 3 19 5 4 23 25 26 7 24 -2
How many pizzas would you buy if the price per slice was $2?

5. You plan to take a vacation and want to maximize your utility
You plan to take a vacation and want to maximize your utility. Based on the info below, which should you choose?
Destination
Tahiti
Chicago
Marginal Utility
3000
5000
Price
3000
2500
Marginal Utility Per Dollar
1Util
2Utils
Calculating Marginal Utility Per Dollar allows you to compare products with different prices.

6. Utility Maximization $5
If you only have $25, what combination of movies and go carts maximizes your utility?
$10
# Times
Going
Ttotal Utility
(Movies)
MU/P
($10)
Marginal
Utility
(Go Carts)
($5)
1st 30 10
2nd 20 5
3rd 2
4th 1 3 2 2 1 1
.40
.50
.20

7. Utility Maximization
If you have $30, what combination of bowling and pizza maximizes your utility? $2
$12
# Times
Going
Marginal Utility
(Bowling)
MU/P
($12)
Marginal
Utility
(Pizza)
($2)
1st 48 10
2nd 36 8
3rd 12 4
4th 6 2 4 5 3 4 1 2
.50 1

8. Quantity of purchasing
Utility Maximization
$50
If you have $150, what combination of yearbook & video game maximizes your utility?
$45
Quantity of purchasing
Total
Utility
(Yearbook)
(Video Game) 1
360
450 2
585
650 3
675
750 4
720
775

9. Utility Maximization $50
If you have $150, what combination of yearbook & video game maximizes your utility?
$45
Quantity purchased
Total
Utility
(YB)
Marginal Utility
(Game) 1
360
450 2
585
650 3
675
750 4
720
775
360
450
225
200 90
100 45 25

10. Utility Maximization $50
If you have $150, what combination of yearbook & video game maximizes your utility?
$45
Quantity purchased TU
(YB) MU
Per Dollar
(Game) 1
360
450 2
585
225
650
200 3
675 90
750
100 4
720 45
775 25 8 9 5 4 2 2 1
.50

11. 2012 Micro (Marginal Utilities)
Quantity of Bagels
Marginal Utility from Bagels
Quantity of Toy Cars
Marginal Utility from Toy Cars 1 8 10 2 7 3 6 4 5
Theresa consumes both bagels and toy cars. (a) The table above shows Theresa’s marginal utility from bagels and toy cars. (i) What is her total utility from purchasing three toy cars? (ii) Theresa’s weekly income is $11, the price of a bagel is $2, and 24
the price of a toy car is $1. What quantity of bagels and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis.
(b) Assume that the price of wheat, an input for the production of bagels, increases. Will Theresa’s demand for bagels increase, decrease, or not change? Explain.
(c) Suppose that Theresa’s income elasticity for bagels is –0.2. Does the value of Theresa’s income elasticity indicate that bagels are normal goods, inferior goods, substitutes, or complements?
(d) Suppose that when the price of toy cars increases by 10 percent, Theresa buys 5 percent fewer toy cars and 4 percent less of a different toy, blocks. Calculate the cross-price elasticity for toy cars and blocks and indicate if it is positive or negative.
3 bagels & 5 toy cars
Demand for bagels will not change because the increase in the price of wheat will only affect the supply of bagels.
Bagels are inferior goods.
% Δ Q
% Δ P =
- 4%
10%
= - 0.4