example : consumer consuming bottles of coke bottles of coke per day tu ( utils ) mu ( utils ) 00...
DESCRIPTION
RecapTRANSCRIPT
Example :Consumer consuming bottles of coke
Bottles of Coke Per Day
TU ( Utils )
MU ( Utils )
0 01 7 72 11 43 13 24 14 15 14 06 13 -1
Recap On Scarcity and
Choice
Recap
c
ba
9
x
MU
TU
Total & Marginal Utility
-202468
10121416
0 2 4 6 8Bottles Consumed
Util
ity
c
ba
x
MU
TU
c
ba
9
x
MU
TU
Total & Marginal Utility
-202468
10121416
0 2 4 6 8Bottles Consumed
Util
ity
MU
TU
POINT 1
Total & Marginal Utility
-202468
10121416
0 2 4 6 8Bottles Consumed
Util
ity
POINT 2
MU
TU
Total & Marginal Utility
-202468
10121416
0 2 4 6 8Bottles Consumed
Util
ityPOINT 3
MU
TU
c
ba
x
c
ba
9
x
MU
TU ∆ U∆ Q
Total & Marginal Utility
-202468
10121416
0 2 4 6 8Bottles Consumed
Util
ity
c
ba
x
MU
TU
POINT 4
∆ U∆ Q
Total & Marginal Utility
-202468
10121416
0 2 4 6 8Bottles Consumed
Util
ity
x
c
ba
11/21/2
POINT 5
MU
TU
TU = 60Q – 4Q2
MU calculated directly
Q TU MU1 56 562 104 483 144 404 176 325 200 246 216 167 224 88 224 09 216 -8
MU = 60 – 8Q Q MU1 522 443 364 28. .. .7 48 -4
People will consume until MU = P
Hence when MU > P consumers will increase consumption until MU = P
Also when MU < P consumers will decrease consumption until MU = P
PETROL CONSUMPTION
Quantity in Liters MU Price
Marginal Consumer
Surplus
1 80 50 30
250 70 50 20
500 61 50 11
900 50 50 0
1250 40 50 -10
Marginal Utility
0
20
40
60
80
100
0 500 1000 1500
Q Litres per annum
MU
( Pr
ice
)
C
D
B
A
IMPORTANT POINTSIMPORTANT POINTS
1.1. OACD = Total Utility OACD = Total Utility
2.2. OBCD = Total RevenueOBCD = Total Revenue
3.3. ABC = Total Consumer SurplusABC = Total Consumer Surplus
Marginal Utility
0
20
40
60
80
100
0 500 1000 1500
Q Litres per annum
MU
( Pr
ice
)
C
DO
B
A
Marginal Utility
020406080
100
0 500 1000 1500
Q Litres per annum
MU
( Pr
ice
)
C
D
B
A
IMPORTANT POINTIMPORTANT POINT1. As the price curve shifts up Q falls ,hence 1. As the price curve shifts up Q falls ,hence MU curve is also the demand curve.MU curve is also the demand curve.
2. As P rises TCS shrinks and when P goes 2. As P rises TCS shrinks and when P goes down TCS rises.down TCS rises.
Price Curve Shifts up
Case of chicken & beef
• When we say that chicken gives 3 times the satisfaction of Beef, we are in fact saying: MUc = 3
MUb 1• & When Chicken costs twice as much as beef :
Pc = 2 Pb 1
• Generalizing for X & Y MUx > P x MUy Py
The consumer will increase buying X and less Y until MUx = Px MUy Py
• Comparing the ratios of their marginal utilities to their prices.
MUc > MUb Pc Pb
• Spend more on chicken and less on beef; as a result MUc will fall and MUb will rise until
MUc = MUb Pc Pb
NOTE: This is the same equi–marginal utility principle NOTE: This is the same equi–marginal utility principle stated earlier.stated earlier.