Consumer Choice and Utility Maximization

Slides:

Advertisements

Similar presentations

Consumer Demand Theory II

Advertisements

Unit 2: Supply, Demand, and Consumer Choice

Consumer Behavior and Utility Maximization

Copyright McGraw-Hill/Irwin, 2002 The Law of Demand Law of Diminishing Marginal Utility Total and Marginal Utility Theory of Consumer Behavior.

2 pt 3 pt 4 pt 5 pt 1 pt 2 pt 3 pt 4 pt 5 pt 1 pt 2 pt 3 pt 4 pt 5 pt 1 pt 2 pt 3 pt 4 pt 5 pt 1 pt 2 pt 3 pt 4 pt 5 pt 1 pt Time Money AdditionSubtraction.

Utility Allyson Colangelo.

Introduction to microeconomics Demand relationships Chapter 4.

What is Inflation? Inflation is rising general level of prices

7.4 The Mean Its time for another Raffle!!! Another local charity is holding a raffle. They are selling 1,000 tickets for $25 each. 1 st Prize: $5,000.

1 The Utility-Maximizing Model Module 11. Use the utility-maximizing model to explain how consumers choose goods and services. 2 ObjectivesObjectives.

A Key to Economic Analysis

Chapter 5 Demand: The Benefit Side of the Market odd-number Questions.

True or False???? The best things in life are free.

Addition 1’s to 20.

End Simplify A. 13B. 147 C. 17D – 2(5)+7.

My Holiday Economic Choices! Using your budget, choose an item to buy for each significant person in your life. Explain any opportunity costs.

Bell Schedules Club Time is available from 8:05-8:20  1 st 8:20 – 9:15  2 nd 9:20 – 10:10  3 rd 10:15 – 11:05  4 th 11:10 – 12:50 A(11:10)

3 3 Consumer Choice: Individual and Market Demand.

Introduction: Thinking Like an Economist 1 CHAPTER The Logic of Individual Choice: The Foundation of Supply and Demand The theory of economics must begin.

Chapter 10 Consumer Choice. 1. What is behind the law of demand? The law of demand can be explained in terms of the concept of utility theory. 2. Utility.

Introduction to Economics Eco 101

Can you get too much of something? DIMINISHING MARGINAL UTILITY.

1 of 8 Principles of Microeconomics: Econ102. Utility: The enjoyment or satisfaction that people receive from consuming goods and services. Marginal utility:

© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed. c h a p t e r nine Prepared by: Fernando & Yvonn.

Consumer Choice Theory. Overview Over the last several weeks, we have taken demand and supply curves as given. We now start examining where demand and.

Utility Law of Diminishing Marginal Utility Because additional units yield less and less utility, the consumer is willing to pay less and less for the.

1 Consumption Theory Why Growth and maintenance of life process Comfort Satisfaction – utility Pleasure – utility Display-Advertise status or perception.

Consumer Choice and Utility Maximization

1.6 Theory of Consumer Behavior Blog posts: "Utility" Theory of Consumer Behavior (AP only unit) Total Utility and Marginal Utility Utility Maximization.

Consumer Choice and Utility Maximization

© 2003 McGraw-Hill Ryerson Limited The Logic of Individual Choice: The Foundation of Supply and Demand Chapter 8.

© 2010 Pearson Addison-Wesley. Preferences A household’s preferences determine the benefits or satisfaction a person receives consuming a good or service.

Consumer Choice.

Consumer Choice and Utility Maximization 1. Would you see the movie three times? Notice that the total benefit is more than the total cost but you would.

Consumer Choice & Utility Maximization 1. The Law of Diminishing “ADDITIONAL” “SATISFACTION” 2 You haven’t had anything to eat for the past 3 days, and.

Objectives:  Use the utility-maximizing model to explain how consumers choose goods and services.  Use the concept of utility to explain how the law.

Chapter 21: Consumer Choice

Consumer Behavior Mr. Bammel. Law of Diminishing Marginal Utility  The principle that the added satisfaction declines as a consumer acquires additional.

ECON107 Principles of Microeconomics Week 9 NOVEMBER w/11/2013 Dr. Mazharul Islam Chapter-8.

Copyright © 2006 Pearson Education Canada Utility and Demand PART 3Households’ Choices 8 CHAPTER.

What does the economic term “Utility” mean? Utility means “satisfaction.”

Unit 2 Reflection 1.Does your grade reflect your learning? Why or why not? 2.What is working? What can Mr. Simpson do to help? 3.What is not working? What.

Consumer Behavior & Utility Maximization ECO 2023 Chapter 7 Fall 2007 Created by: M. Mari.

Consumer Choice and Utility Maximization

Marginal Utility Utility – Usefullness, satisfaction Happy Points.

CONSUMER BEHAVIOR. UTILITY The satisfaction that consumption of a good or service provides.

Consumer Behavior and Utility Maximization HOW CONSUMERS MAKE CHOICES UNDER INCOME CONSTRAINTS UTILITY MAXIMIZATION.

2002 Microeconomics Question 3.

Chap 21 Consumer Behavior & Utility Maximization By: Anabel Gonzalez & Amanda Reina.

Price Controls and the Benefits of Exchange An efficient market maximizes the sum of producer and consumer surplus Price ceilings and floors harm efficiency.

CONSUMER BEHAVIOR. UTILITY The satisfaction that consumption of a good or service provides.

Unit 2: Demand, Supply, and Consumer Choice 1 Copyright ACDC Leadership 2015.

Consumer Choice and Utility Maximization

Consumer Choice & Utility Maximization

Consumer Choice and Utility Maximization

Consumer Choice: Maximizing Utility

Consumer Choice and Utility Maximization

Unit 2: Demand, Supply, and Consumer Choice

Unit 2: Demand, Supply, and Consumer Choice

Total and Marginal Utility

Consumer Choice: Maximizing Utility

Consumer Choice and Utility Maximization

Unit 2: Demand, Supply, and Consumer Choice

Unit 2: Demand, Supply, and Consumer Choice

Consumer Choice and Utility Maximization

Unit 2: Demand, Supply, and Consumer Choice

Consumer Choice and Utility Maximization

Consumer Choice and Utility Maximization

Presentation transcript:

Consumer Choice and Utility Maximization

The Law of Diminishing “ADDITIONAL” “SATISFACTION”

Would you see the movie three times? Thinking at the Margin # Times Watching Movie Marginal Utility Price 1st $30 $10 2nd $15 3rd $5 Total $50 Would you see the movie three times? Notice that the total benefit is more than the total cost but you would NOT watch the movie the 3rd time.

Calculate Marginal Utility # of Slices of Pizza Total Utility (in utils) Marginal Utility/Benefit 1 8 2 14 3 19 4 23 5 25 6 26 7 24 How many pizzas would you buy if the price per slice was $2?

Calculate Marginal Utility # of Slices of Pizza Total Utility (in dollars) Marginal Utility/Benefit 1 8 2 14 6 3 19 5 4 23 25 26 7 24 -2 Marginal Cost $2 How many pizzas would you buy if the price per slice was $2?

Calculate Marginal Utility # of Slices of Pizza Total Utility (in dollars) Marginal Utility/Benefit 1 8 2 14 6 3 19 5 4 23 25 26 7 24 -2 Marginal Cost 2 You will continue to consume until Marginal Benefit = Marginal Cost How many pizzas would you buy if the price per slice was $2?

Marginal Utility Per Dollar CONSUMER BEHAVIOR You plan to take a vacation and want to maximize your utility. Based on the info below, which should you choose? Destination Marginal Utility (In Utils) Price Tahiti 3000 $3,000 Chicago 1000 $500 Marginal Utility Per Dollar 1 Util 2 Utils

Marginal Utility Per Dollar CONSUMER BEHAVIOR You plan to take a vacation and want to maximize your utility. Based on the info below, which should you choose? Destination Marginal Utility (In Utils) Price Tahiti 3000 $3,000 Chicago 1000 $500 Marginal Utility Per Dollar 1 Util 2 Utils Calculating Marginal Utility Per Dollar allows you to compare products with different prices.

Utility Maximization $10 $5 # Times Going Marginal Utility (Movies) MU/P (Price =$10) Marginal Utility (Go Carts) (Price =$5) 1st 30 10 2nd 20 5 3rd 2 4th 1 If you only have $25, what combination of movies and go carts maximizes your utility?

Utility Maximization $10 $5 # Times Going Marginal Utility (Movies) MU/P (Price =$10) Marginal Utility (Go Carts) (Price =$5) 1st 30 3 10 $2 2nd 20 5 $1 3rd 2 $.40 4th $.50 1 $.20 If you only have $25, what combination of movies and go carts maximizes your utility?

Utility Maximization $10 $5 # Times Going Marginal Utility (Movies) MU/P (Price =$10) Marginal Utility (Go Carts) (Price =$5) 1st 30 3 10 2 2nd 20 $2 5 $1 3rd $.40 4th $.50 1 $.20 If you only have $25, what combination of movies and go carts maximizes your utility?

Utility Maximization $10 $5 # Times Going Marginal Utility (Movies) MU/P (Price =$10) Marginal Utility (Go Carts) (Price =$5) 1st 30 3 10 2 2nd 20 5 1 3rd .40 4th .50 .20 If you only have $25, what combination of movies and go carts maximizes your utility?

Utility Maximizing Rule The consumer’s money should be spent so that the marginal utility per dollar of each goods equal each other. MUx = MUy Px Py 3 apples and 2 oranges Assume apples cost $1 each and oranges cost $2 each. If the consumer has $7, identify the combination that maximizes utility.

Utility Maximizing Rule The utility maximizing rule assumes that you always consume where MU/P for each product is equal 14