1. Utility
Allyson Colangelo

2. Getting the most or your Money
Is the want satisfying power of a good or service
This deters how much an individual is willing to pay for a good or service
Based off of tastes and preferences and income

3. Terms Util- measurement of utility
Utility Analysis- study of decisions based off want satifacation
Marginal Utility- change in total utility / change in # of units
Normal goods- demand increases as income increases
Substitute goods-demands decreases as income increases

4. Other things
Law of diminishing Marginal Utility- when utility decreases when we have become over satisfied
Consumer Optimum- getting the most utility for your money
Subsitution effect- product that you use instead of normal good
Diamond water Paradox- necessities vs. wants
That price is derived from scarcity not necessity
Price is derived from Marginal Utility not Total Utility
Example: Diamonds are a real world example

5. Who cares? Consumers How much a good or service is worth? Producers
How much to sell product for ?
Government
What to tax ?

6. # of days
1 day
2 days
3 days
4 days
5 days
6 days
7 days
8 days
9 days
10 days
Price
$136
$216
$278
$286
$291
$296
$301
$306
$311
$316 $5 $5 $5
$80 $8 $5 $5
$62 $5
Disney used the law of diminishing marginal utility to find its prices for park hopper.

7. Consumer surplus S2
Supply $
Dead Weight Loss P1 Q1
Producer Surplus #

8. (a) Define marginal utility.
2. Utility and price elasticity of demand are important concepts in explaining consumer behavior.
(a) Define marginal utility.
(b) The table below shows the quantities, prices, and marginal utilities of two goods, fudge and coffee, which
Mandy purchases.
Inelastic= Positive #
Unit Elastic = Zero
Fudge
Coffee
Quantity Of Purchase
10 Pounds
7 Pounds
Price Per Pound $2 $4
Marginal Utility of Last Pound 12 20
Elastic = negative #
Mandy spends all her money and buys only these two goods. In order to maximize her utility, should Mandy purchase more fudge and less coffee, purchase more coffee and less fudge, or maintain her current
consumption? Explain.
(c) Assume that consumers always buy 20 units of good R each month regardless of its price.
(i) What is the numerical value of the price elasticity of demand for good R?
(ii) If the government implements a per-unit tax of $2 on good R, how much of the tax will the seller pay?
Elasticity: % change in quantity demanded over % change in price

9. Answers
(a) The additional amount of satisfaction gain from the consumption of an extra good.
(b) She should purchase more fudge and less coffee because her MU for each dollar spent on fudge is greater then her MU for each dollar spent on coffee
( c)
(i) the Elasticity is 0
(ii) None of the tax will be paid by the seller only by the buyer

10. 1. Refer to the table of Antonio's utility for novels and history books. What is Antonio's marginal utility of the 3rd history Book?   A. 390  B. 60  C. 320  D. 90  E. 120
2. Refer to Antonio's table of utility data. What
is Antonio's marginal utility of the 4th Novel?   E. 360  B. 60  C. 40  D. 20  E. 30
3. Refer to Table. The price of history books is $30 each and the price of novels is $20 each. Antonio has $200 of gift certificates for the local bookstore. He intends to purchase a combination of history books and novels. How many history books will he purchase?   A. 1  B. 2  C. 3  D. 4  E. 5  F. 6

11. 1) D. 90 The difference between the TU 300 and 390 is 90 giving MU
The difference between TU 360 and 320 is 40 giving MU
3)D.4
4 History Books and 4 Novels gives the highest amount of MU for his money