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Learning Objectives:
Consumer Choice
LO1: Explain the law of diminishing marginal utility
LO2: Derive a consumers’ purchasing rule which ensures that satisfaction is maximized
LO3: Explain how marginal utility theory is applicable to real-world examples
LO4: Provide a theoretical rationale for downward sloping demand curves
CHAPTER 5
5-1© 2012 McGraw-Hill Ryerson Limited
Marginal Utility and Demand
Akio’s Dollar Marginal Utility Demand Curve, Derived
5-2© 2012 McGraw-Hill Ryerson Limited
LO4
Quantity Consumed
$MU
1 $82 53 44 35 26 17 0
Price Quantity Demanded
$10 09 08 17 16 15 24 33 42 51 6
Marginal Utility and Demand
5-3© 2012 McGraw-Hill Ryerson Limited
LO4
Diamond Water Paradox • Why is water (which has a very high value in use)
inexpensive, while diamonds (which have a low value in use) expensive?
• Value in use is reflected in the total utility of a product
• Value in exchange (the price) is determined by its marginal utility.
5-4© 2012 McGraw-Hill Ryerson Limited
LO4