Econ Nov. 19 by Peter Melkonian

1 of 40

Slide Notes

Econ Nov. 19

Published on Nov 28, 2015

No Description

View Outline

PRESENTATION OUTLINE

Utility Theory

Mr. Melkonian

Cookies

on a scale of 1-10

how satisfying was that?

Photo by mikecogh

let's do this a few times

what factors determine the demand for products?

Photo by Sam Howzit

utility theory

the perceived ability of something to satisfy needs or wants

Photo by WarzauWynn

baron bedros

is a health conscious guy

Photo by "The Wanderer's Eye Photography"

choice for dinner

steak/veggies or moujedere/salad

what factors can influence me?

Photo by Éole

10.

how much steak have i eaten

recently?

11.

if i ate a lot...

maybe i'd be a little MOre satisfied with moujedere

Photo by meshmar2

12.

this 'extra' satisfaction/usefulness

is called utility (useful) in economic terms

Photo by harry harris

13.

marginal utility

extra satisfaction

Photo by CarbonNYC [in SF!]

14.

The marginal utility that I would gain from eating another steak is low because I've had a lot recently.

Photo by Lon&Queta

15.

however...

if i hadn't eaten steak recently, my satisfaction might be higher

Photo by theqspeaks

16.

what if i wanted both?

moujedere and steak??!!?! a wild evening...

Photo by Basial

17.

i want to maximize my satisfaction

or utility (based on available income)

Photo by dbking

18.

i have $20 to spend on food

steak costs $4, Mouj costs $1

Photo by Philip Taylor PT

19.

how much of each should i buy?

Photo by lgkiii

20.

utils

units of satisfaction (arbitrary thing)

Photo by Images of Sri Lanka - Sequential Shots

21.

utility from 1 of each is high

satisfaction drops off though...

Photo by ajagendorf25

22.

UTILITY still rising

but marginal utility steadily falls

Photo by dharma communications

23.

if i had infinite funds

i could maximize my utility - buy everything!

Photo by arimoore

24.

alas... i don't

find another combo for max satisfaction

Photo by Frank Wuestefeld

25.

Marginal utility/ price of A =
Marginal utility / price of B
want both to be equal

26.

getting same satisfaction per dollar

no reason to buy more/less of another

Photo by MarkGregory007

27.

consumer equilibrium

maximize total utility given money constraints

Photo by Andrew_D_Hurley

28.

application to demand curve

Photo by NASA Goddard Space Flight Center

29.

curves down and to right

makes sense - consumers buy more if price drops

30.

if people consume more of a product

they want to pay less, not more

Photo by bjornmeansbear

31.

paradox of value (adam smith)

diamonds vs water

Photo by Jeffrey Beall

32.

we need water to survive

why are diamonds more expensive than water??

Photo by Ian Sane

33.

difference between total and marginal utility

Photo by onkel_wart (thomas lieser)

34.

Water is infinitely more useful than diamonds. If diamonds disappeared today, we would get by... But diamonds are rare compared to water. Purchased infrequently, so it's very satisfying to have one.

35.

marginal UTILITY (extra satisfaction)

is very high - so people will buy it

Photo by neltek

36.

consumer surplus

we get a deal on everything we buy!

Photo by Glenn Waters ぐれんin Japan.

37.

i'm willing to pay $1 for an apple

crisp, fresh, organic royal gala

Photo by mohammadali

38.

if apples got cheaper ($0.25)

i'd buy more

Photo by kevin dooley

39.

sO i'M HAVING A SURPLUS OF APPLES

SUBTRACT HOW MUCH I WOULD HAVE PAID FOR WHAT I ACTUALLY DID

Photo by Dave Dugdale

40.

WHAT WE'RE WILLING TO PAY

COMPARED TO WHAT WE ACTUALLY DID

Photo by Thai Jasmine (Smile..smile...Smile..)