utility theory Flashcards
according to traditional neo classical thought economocic agents will always look to try
max their beenfit
firm try to maximise profit and so are
profit maximisers
what do gov want to max
social welfare of citizens
what do workers want to maximise
welfare they derive a work - max their wage
consumer wants to maximise their
utliity
what is marginal utlitly
extar utility gained when one more unit is consumed or produced
average utilty =
total utility / q
marginal utlity is = to what
marginal private benefit when a unit is consumed
when we dra w utliity graph what are our axis
utliels - ya xis
qyanoityt of coke x axis
why is averga eutility and marginal utilty downwards sloping
law of diminishing marginal returns
as q consumed increases MU derived from each extra unit decreases
when im thorsty and first drink someone the utilty consumed is gonna be
huge
from then on it decreases
when is total utility maximised
marginal utility = 0
why doesnt it make sense to stop before quantity where MU = 0
more utlity can be generated if more units of coke drank
so not maxed
why doesnt it make sense to continue consumign beyond after MU = 0
beyonf this figure MU is negative therfore brings downt otal utilty whihc is not maxing it
describe shape of tital utilty curve
due to LODmu
Increases but at a slower rate than as when more quantity is ocnsumed as MU decreases up till we hit peeak where MU = 0
ratinal consumer look to maxmise utility will consume units up till what considiton
where MU = 0
price = to
utility
cuz price = to utilty thats why the y axis is
price
we keep consuming as long as
utility derived is more than what is being paid for
a rational consumer when price is inovled will keep doing what
consuming til MU = £
MU is also
marginal private benefit
MU is also marginal private benfit and
DEmand cureve
when we increase price less units will satisfy where
MU = P
when we decrease price more units can be consumed to
max utility govem MU = P rherfire MU = d
