eco a level

• Utility


  The benefit or satisfaction derived from the consumption of a good or service
• Total Utility (TU)


  The benefit or satisfaction derived from the consumption of a good or service
• Marginal Utility (MU)


  The benefit or satisfaction derived from the consumption of an additional unit of a good
• Measuring utility in and of itself is conceptual so you may see the unit Util used to measure utility. These are theoretical units.
• You consume goods or services because they give you utility. You consume additional goods or services because you obtain marginal utility.
• Law of diminishing marginal utility

  The marginal utility of a good decreases as the quantity consumed increases. (or TU increases more slowly as Q increases)

  
• When TU is at its maximum, MU = 0
• To calculate marginal utility


  Divide change in TU by change in quantity

  
• Slices of Pizza


  • TU and MU values
• Apples


  • TU and MU values
• Shoes


  • TU and MU values
• Umbrellas


  • TU and MU values
• Deriving TU from MU


  1. TU = Sum of all MU

  2. TU = MU1 + MU2 + MUn
• Your personal demand curve derives from your MU for each additional unit
• Rational consumer behaviour


  Consumers will act in such a way as to maximise their satisfaction or utility given the limits of their budget and their preferences
• Competitive market functioning is the interaction of rational consumers and rational producers who's decisions give the demand and supply curves respectively
• Equi-marginal principle


  A rational consumer will allocate their resources in such a way that the marginal utility per dollar (or per unit) is the same for all goods and services. So they may purchase different combinations of goods, but each combination maximises their utility.
• Factors limiting consumer utility maximisation are budget constraints, diminishing marginal utility, and imperfect information & time constraints