1.7 consumer behaviour + utility

define utility

the satisfaction, well-being, or value that an individual derives from consuming goods + services

define disutility

no benefits from consuming a good

define marginal utility

refers to the additional satisfaction or utility gained from consuming one more unit of a good or service

define diminishing marginal utility

states as a person consumes more units of a particular good or service while keeping the consumption of other goods constant, the additional satisfaction gained from each additional unit will decrease

define total utility

Total utility (TU) is the total satisfaction a consumer gains from consuming a given quantity of a good or service.

describe the relationship between TU and MU

Marginal utility (MU) is the change in total utility (TU) from consuming one additional unit.

So MU determines how TU changes.

give an example of utility

1. your eating pizza

2. the utility you get from the pizza is the satisfaction you receive from consuming it

what happens when MU is negative?

total utility decreases

provide an example of marginal utility

1. you eat additional pizza

2. marginal utility is the EXTRA satisfaction you gain from eating one additional slice

e.g. 1st slice → +10 utils

• 2nd slice → +8 utils

• 3rd slice → +5 utils

provide an example to explain the relationship between MU + TU

e.g. imagine eating slices of pizza:

• 1st slice → MU = 10 → TU = 10

• 2nd slice → MU = 8 → TU = 18

• 3rd slice → MU = 5 → TU = 23

• 4th slice → MU = 0 → TU = 23 ← maximum TU

• 5th slice → MU = −3 → TU = 20

Notice that MU can be decreasing while TU is still increasing. That's because MU is still positive

what’s the MU when TU is at its maximum?

MU = 0

provide an example of diminishing marginal utility

1. you eat pizza

2. marginal utility decreases as you eat more pizza

3. this is because your becoming more satisfied and full, meaning every additional slice you consume gives you less extra satisfaction

what’s the MU when TU is increasing

MU = positive

TASK: draw a diagram to explain TU and MU