CONSUMER CHOICE - NISA UNI - home消费者的选择-尼萨单家.pptVIP

CONSUMER CHOICE The Theory of Demand Two major approaches to utility KARDINAL direct measuribility of utility Tools used: - Total utility curve - Marginal utility curve ORDINAL immeasurability of utility Tools used: Indifference analysis Basic assumption: consumer can rank market baskets (the most desired basket is ranked first) CARDINAL APPROACH TO UTILITY Utility = satisfaction consumers receive from items they require, activities they engage in, or services they use Total utility = total satisfaction enjoyed from consuming any given quantity ?it′s a subjective concept Marginal utility = the extra satisfaction a person receives over a given period by consuming one extra unit of a good Relationship of Total and Marginal Utility The relationship between total and marginal utility can be expressed also graphically. The figure of total utility shows how the total utility depends on the amount of consumed good èthe ratio represents than the slope of total utility curve. Relationship TU and MU graphically 1. Gossen′s law The law of diminishing marginal utility – the amount of extra or marginal utility declines as a person consumes more and more of a good ?Utility tends to increase as you consume more of a good, however, according to the law of diminishing marginal utility, your total utility will grow at a slower and slower rate Consumer Equilibrium As a rational consumer, you presumably seek to obtain the greatest possible utility from your limited monthly income. On condition we don′t have to pay anything for a good, the equlibrium level of consumption of that good would be the amount that brings us the highest total utility. Equilibrium amount of a good will be bought than, as long as the marginal utility equals the price of that product: MU = P 2. Gossen′s law The law of equal marginal utilities per dollar/euro.. = equimarginal principle to maximize utility, consumer must equalize the marginal utility per euro spent on each goo