The Analysis of Consumer Choice
Read the Introduction and these two sections. Attempt the "Try It" problems at the end of each section. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section.
These outcomes should be your goals as you read through the chapter.
2. The Concept of Utility
2.4. Key Takeaways
- The utility of a good or service is determined by how much satisfaction a particular consumer obtains from it. Utility is not a quality inherent in the good or service itself.
- Total utility is a conceptual measure of the number of units of utility a consumer gains from consuming a good, service, or activity. Marginal utility is the increase in total utility obtained by consuming one more unit of a good, service, or activity.
- As a consumer consumes more and more of a good or service, its marginal utility falls.
- Utility maximization requires seeking the greatest total utility from a given budget.
- Utility is maximized when total outlays equal the budget available and when the ratios of marginal utility to price are equal for all goods and services a consumer consumes; this is the utility-maximizing condition.