Lecture 7 - Marginal utility theory(20/10/25)

What does rational consumer behaviour emphasize regarding choices?

A rational consumer chooses the combination of goods that gives them the highest possible satisfaction for the money they have.

Define utility in the context of consumer behavior.

Utility is the satisfaction or pleasure you receive when consuming a good or service.

What is total utility (TU)?

Total utility is the total satisfaction a person gains from all those units of a commodity consumed within a given time period.

How is marginal utility (MU) calculated?

Marginal Utility is the additional satisfaction gained from consuming one extra unit within a given period of time, calculated as TU/Q.

What is the principle of diminishing marginal utility?

The more of a product a person consumes, the less additional utility they gain from one more unit.

What is marginal consumer surplus (MCS)?

Marginal Consumer Surplus is calculated as Marginal Utility minus Price.

Define total consumer surplus (TCS).

Total Consumer Surplus is calculated as Total Utility minus Total Expenditure (TCS = TU - TE).

What does inter temporal choice refer to?

Inter temporal choice refers to the decision between spending or consuming now and saving or consuming later.

What do indifference curves illustrate in consumer choice?

Indifference curves illustrate combinations of goods that provide the same level of utility, and they cannot cross without indicating irrational thinking.

What is optimal consumption?

Optimal consumption is where satisfaction is maximized.