Utility Allyson Colangelo Is the want satisfying power

Utility Allyson Colangelo

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

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

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

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

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

Consumer surplus S 2 $ Supply Dead Weight Loss P 1 Producer Surplus Q 1 #

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. Fudge Coffee Quantity Of Purchase 10 Pounds 7 Pounds Price Per Pound $2 $4 Marginal Utility of 12 Last Pound 20 Inelastic = Positive # Unit Elastic = Zero Elastic = negative # Mandy spends all her money and buys only these two goods. In order to Elasticity: % maximize her utility, should Mandy purchase more fudge and less coffee, change in purchase more coffee and less fudge, or maintain her current quantity demanded consumption? Explain. over % change (c) Assume that consumers always buy 20 units of good R each month in price 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?

(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

1. Refer to the table of Antonio's utility for novels and history books. What is Antonio's marginal utility of the 3 rd 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 4 th 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

1) D. 90 The difference between the TU 300 and 390 is 90 giving MU 2) C. 40 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