Chapter 5- Utility

Utility

-is a want

- is subjective

-is difficult to measure

what is the unit of measurement for utility

utils

Total utility (TU)

the total amount of satisfactions or pleasure a person derives from consuming some specific quantity of a good or service

Marginal Utility (MU)

the actual satisfaction a consumer realizes from an additional unit of that product

what four consumption choices are made by the typical consumer

rational behavior, preference, budget constraint, prices

utility maximization rule

to maximize satisfaction, the consumer should allocate his or her money income so that the last dollar spent on each product yields the same amount of extra marginal utility