Chapter 19Consumer Choice.ppt

Introduction Learning Objectives Distinguish between total utility and marginal utility Discuss why marginal utility at first rises but ultimately tends to decline as a person consumes more of a good or service Learning Objectives Explain why an individual’s optimal choice of how much to consume of each good or service entails equalizing the marginal utility per dollar spent across all goods and services Describe the substitution effect of a price change on the quantity demanded of a good or service Learning Objectives Understand how the real-income effect of a price change affects the quantity of a good or service demanded Evaluate why the price of diamonds is so much higher than the price of water even though people cannot survive long without water Chapter Outline Utility Theory Graphic Analysis Diminishing Marginal Utility Optimizing Consumption Choices How a Price Change Affects Consumer Optimum The Demand Curve Revisited Did You Know That... Online shoppers do not spend much time comparing prices of the same items at other Web sites? A reduction in overall time spent locating and selecting an item reduces its cost? Utility Theory Utility The want-satisfying power of a good or service Utility Analysis The analysis of consumer decision making based on utility maximization Util A representative unit by which utilityis measured Utility Theory Marginal Utility The change in total utility due to a one-unit change in the quantity of a good or service consumed Total and Marginal Utilityof Watching Videos Graphic Analysis A graph can be used to display the values displayed in the table to better see their relationships. Total and Marginal Utilityof Watching Videos Total and Marginal Utilityof Watching Videos Total and Marginal Utilityof Watching Videos Total and Marginal Utilityof Watching Videos Observations Marginal utility falls Marginal utility = 0 when total utility is at its maximum Diminishing Marginal Utility Diminishing Marginal Utility The pr