Presentation on theme: "Mr. Bernstein Module 51: Utility Maximization September 8, 2014"— Presentation transcript:
1 Mr. Bernstein Module 51: Utility Maximization September 8, 2014 AP EconomicsMr. BernsteinModule 51:Utility MaximizationSeptember 8, 2014
2 AP Economics Mr. Bernstein Utility MaximizationConsumers make choices about purchasing goods and servicesConsumers goal is to maximize utility, or happinessUtility is a measure of satisfaction gained from consuming a good or serviceCan you really measure utility? Maybe not, but consumers know it when they make decisions
3 AP Economics Mr. Bernstein Utility MaximizationThe 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 bundlesNote: If Marginal Utility (MU) is declining but still positive, Total Utility (TU) is rising and that unit of the good should be consumedConsumers 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 BundlePoint C is unaffordable. Point A is not optimal.$25 eachBAC$10 each