Summary Economics: A Southern African Context, 3e - EKN110 - Chapter 3

, key concepts


rational
utility behaviour
·




·
cardinal utility ·

budget constraint


·
ordinal utility ·
budget line

·
total utility indifference curve


·



marginal utility ·
MRS


law of
diminishing marginal utility ·

equilibrium


utility
·



Utility >
- level of satisfaction achieved
by consuming
a
good / service


↳ I NOT the same as usefulness

↳ 2
Utility is
Subjective
Cardinal utility Ordinal
vs
utility
↓ ↓

utility that can be
utility that is not quantifyable but
measured in numerical can be ordered by comparisons
values


>
- units are called utils



·
Total Utility : The total amount of satisfaction/pleasure a
person receives
from
consuming

additional unit of
·




Marginal utility : The extra satisfaction/pleasure a
person gets from an
product
↳ utility that results from the consumption of product
↓
in total one more
the
change
Mu = XTY
Q




Tota
Marginal utility graph
utility ,


-
-




-
by
diminishing
TH 10
30
+ a MU remains positive then
amount until it S
reaches a 'top' at 6 units
20

>
6

·
reaches a max then into
,
L
↓ new continues the
declines satisfaction
negative
ass
2 as -




8 with each additional unit
6
units consumed .
consumed
tils