Consumer Behavior in Economics

Study Notes

Utility: The additional satisfaction from consuming an extra unit of a good or service.
Diminishing Marginal Utility: The decrease in additional satisfaction received from consuming successive units of a good.
Consumer Equilibrium: A state where the consumer maximizes their total utility given their budget constraints. In this state, the marginal utility per dollar is equal for all goods and services.
Maximizing Utility: When the consumer maximizes their total utility given their budget constraints. This occurs when the ratio of marginal utility to price is equal for all goods consumed.
Consumer Equilibrium example: A consumer with $80 to spend, sailing costs $10 per hour and skiing costs $20 per hour .
The consumer can either sail 4 hours and ski 2 hours or sail 3 hours and ski 2 hours etc to maximize utility.

Table 8.2.1: Shows total utility from sailing and skiing based on the hours spent.
Table 8.2.2: Shows marginal utility for bags of popcorn and bottles of pop.
Table 8.2.3: Shows the utility from different quantities of two goods, X and Y, and their respective prices.

Marginal Utility: The additional satisfaction from consuming one more unit of a good.
Total Utility: The total satisfaction from consuming a given quantity of a good or service.
Consumer equilibrium Consumers must maximize their utility when faced with limited incomes and a variety of goods and services.
Price Ratio: When consumers are in equilibrium, the ratio of the marginal utility to the price of the goods/services must be equal to maximize their total satisfaction within limited resources.
Utility Maximization: Consumers will choose consumption bundles that maximize their overall utility, given their budget constraints. This is achieved when the marginal utility per dollar spent is equal across all goods.