UNIT 2 MICRO - Tagged

MICRO ECONOMICS UNIT 2 - UTILITY

Page 1: Introduction

• Title: Utility

• Author: Claire Helsby

Page 3: Case Study - Quirkonomics

• Concept of Marginal Utility:

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

  • Example: Initially, drinking one beer provides high satisfaction; by the second beer, satisfaction increases, reaching a peak by the fifth.

  • Diminishing Marginal Utility:

    • As consumption increases, the incremental satisfaction gained from consuming additional units decreases.

    • After several beers, the utility decreases due to potential hangover effects.

Page 4: Diminishing Marginal Utility and the Internet

• Applies to many scenarios but not universally.

• Internet Usage:

  • Time spent online often has little perceived cost, leading to a different experience of utility compared to physical goods.

  • Users may experience constant or increasing utility with more time spent online due to vast resources available.

Page 5: Key Definitions of Utility

• Utility:

  • Refers to the satisfaction a consumer derives from consuming a good or service.

  • Subject to individual differences, time, and context.

  • Utility is not measurable in physical terms; units of utility are referred to as "utils".

• Characteristics of Utility:

  • Differs among individuals, times, and places.

  • Subjective and abstract, making direct comparisons difficult.

Page 6: Marginal Utility and Total Utility

• Total Utility:

  • Sum of all marginal utilities received from consuming units of a good.

  • Example with yoghurt consumption:

    • 1st tub = 70 utils, 2nd tub = 50 utils (total = 120), decreasing with additional units.

• Disutility:

  • Refers to negative utility; occurs when additional consumption leads to dissatisfaction.

Page 7: Consumer Equilibrium

• Consumers seek to maximize their total utility within set budgets and prices.

• Equilibrium is achieved when no alternative consumption plan can increase total utility.

• Weighted Marginal Utility:

  • Calculation considers the price of goods to maximize utility per unit spent.

Page 9: Equalising Weighted Marginal Utilities

• The law states that equilibrium is achieved when the ratio of marginal utilities equals the ratio of market prices.

Page 10: Demand Curve Derivation

• Demand Curve:

  • Shows quantities demanded at different prices.

• Example with Zena's consumption: Changing prices affect the combination of goods she can buy while maximizing utility.

  • Price change leads to altered consumption rates in search of maximum utility.

Page 12: Tasks and Calculations

• Utility Calculations:

  • Tasks involve calculating marginal and total utility from consumption data provided.

  • Assess understanding of utility concepts through practical examples.

Page 13-18: Luxury Foods Case Studies

• Comprehensive analysis of consumer choices in multiple scenarios involving chocolate, popcorn, soda, chips, and pizza.

• Assess how price changes impact consumer choices and equilibrium.

• Requires calculations and considerations on product combinations to yield highest utility.

Utility Summary

Concept of Utility: Utility refers to the satisfaction derived from consuming goods or services, measurable in "utils".

Marginal Utility: The additional satisfaction gained from consuming one more unit. It tends to diminish with increased consumption, as seen in the example of drinking beer.

Diminishing Marginal Utility: As more units are consumed, the incremental satisfaction decreases; for example, too many beers may lead to a hangover.

Internet Usage: Unlike physical goods, time spent online often offers consistent or increasing utility due to abundant resources available.

Total Utility: The sum of all marginal utilities for consumed units; can lead to disutility when too much is consumed.

Consumer Equilibrium: Achieved when consumers maximize their total utility given budget and prices. The law of equalizing marginal utilities applies here.

Demand Curve: Illustrates quantities demanded at various prices, showing how price changes impact consumer choices.

Calculations: Involves assessing marginal and total utility based on consumption data and analyzing choices to achieve the highest utility across various products.