Electric Potential WS 2 - Rose-Hulman.doc
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1、Consumer Choice and Demand Chapter 11 CHAPTER OUTLINE I. Calculate and graph a budget line that shows the limits to a persons consumption possibilities. A. The Budget Line B. A Changes in the Budget C. Changes in Prices 1. A Fall in the Price of Water 2. A Rise in the Price of Water D. Prices and th
2、e Slope of the Budget Line 2. Explain marginal utility theory and use it to derive a consumers demand curve. A. Utility 1. Temperature: An Analogy B. Total Utility C. Marginal Utility D. Maximizing Total Utility 1. Allocate the Available Budget 2. Equalize the Marginal Utility Per Dollar Spent E. Fi
3、nding An Individual Demand Curve F. The Power of Marginal Analysis G. Units of Utility 3. Use marginal utility theory to explain the paradox of value: Why water is vital but cheap while diamonds are relatively useless but expensive. A. Consumer Efficiency B. The Paradox of Value 1. Consumer Surplus
4、268Part 4 . A CLOSER LOOK AT DECISION MAKERS Whats New in this Edition? Chapter 11 uses a see-saw analogy to give a more intuitive explanation of why equalizing the marginal utility per dollar maximizes total utility. The material that related elasticity to marginal utility is deleted. Where We Are
5、In this chapter, we uncover the consumers behavior that leads to a downward-sloping demand curve. The consumer maximizes utility by allocating his or her entire budget while equating the marginal utility per dollar spent across all goods. As a result, the demand curve reflects choices a consumer is
6、willing to make that maximize his or her utility. The chapter concludes by investigating the paradox of value. Where Weve Been The first three sections of the book focused heavily on demand and supply. The demand and supply model was developed and then extended to discuss efficiency, externalities,
7、public goods, common resources, and government policies such as price ceilings, price floors, and taxes. Where Were Going After this chapter, the focus turns to exploring the supply curve in greater detail. Chapter 12 looks at a firms production choices and its total product function. After examinin
8、g the firms production, we examine its costs and its cost curves in the short run and in the long run. IN THE CLASSROOM Class Time Needed You can complete this chapter in two to two and a half class sessions, depending the mathematical level of your class. An estimate of the time per checkpoint is:
9、11.1 Consumption Possibilities25 to 35 minutes 11.2 Marginal Utility Theory50 to 80 minutes 11.3 Efficiency, Price, and Value15 to 20 minutes Chapter 11 . Consumer Choice and Demand269 CHAPTER LECTURE 11.1Consumption Possibilities The Budget Line Households have limited budgets, which means they mus
10、t choose between affordable combinations of goods and services. A budget line, illustrated in the figure, shows the limits to a households consumption choices. The household can buy any combination of sodas and movies that lies on or within the budget line. A Change in the Budget When the persons bu
11、dget changes, the budget line shifts and its slope does not change. If the budget increases, the budget line shifts outward; if the budget decreases, the budget line shifts inward. A Change in Prices When the price of the good measured along the horizontal axis (movies) changes, the budget line rota
12、tes around the vertical intercept. If the price of the good falls, the budget line rotates outward and becomes steeper; if the price of the good rises, the budget line rotates inward and becomes steeper. When the price of the good measured along the vertical axis (sodas) changes, the budget line rot
13、ates around the horizontal intercept. If the price of the good falls, the budget line rotates outward and becomes less steep; if the price of the good rises, the budget line rotates inward and becomes less steep. A relative price is the price of one good divided by the price of another good. The mag
14、nitude of the slope of the budget line is the relative price of the good on the horizontal axis in terms of the good on the vertical axis, or in the diagram, the relative price of a movie in terms of sodas. A relative price is an opportunity cost, so the relative price of a movie in terms of sodas g
15、ives the opportunity cost of a movie in terms of sodas forgone 270Part 4 . A CLOSER LOOK AT DECISION MAKERS 11.2Marginal Utility Theory Utility The benefit or satisfaction that a person gets from the consumption of a good or service is called utility. Total utility is the total benefit that a person
16、 gets from the consumption of goods and services. As more of a good or service is consumed, total utility increases. Marginal utility is the change in total utility that results from a one-unit increase in the quantity of a good consumed. Diminishing marginal utility is the principle that as more of
17、 a good or service is consumed, its marginal utility decreases. The table to the right has the total utility and marginal utility from an individuals consumption of movies in a week. Maximizing Total Utility A consumers choices influence the total level of his or her utility by because the choice de
18、termines the combination of goods that are consumed. Some combinations will generate more utility than others. The key assumption of marginal utility theory is that the household consumes the combination that maximizes its utility. The utility-maximizing rule has two steps: Allocate the entire avail
19、able budget Make the marginal utility per dollar equal for all goods. The marginal utility per dollar is the marginal utility from a good relative to the price paid for the good, which is the marginal utility from a good divided by its price. This rule maximizes utility because anytime the marginal
20、utility per dollar spent on one good exceeds that of another good, the consumer can increase his or her total utility by spending a dollar less on the good with the lower marginal utility per dollar spent and spending the dollar on the good with the higher marginal utility per dollar spent. The tabl
21、e to the right has the marginal utility schedules that are computed from the total utility schedules in the table above. The price of a movie is $8, the price of a paper back book is $4, and the consumer has $24 to allocate between movies and books. To maximize utility, the individual buys 2 movies
22、and 2 books because that combination of movies and books spends all the available income and sets the marginal utility per dollar spent of movies equal to that of books. (Both equal 2.50.). Quantity of movies Total utility Marginal utility 0 0 24 124 20 244 16 360 12 472 Quantity of movies Marginal
23、utility Quantity of books Marginal utility 124120 220210 3183 8 4 84 6 5 45 4 6 26 2 Chapter 11 . Consumer Choice and Demand271 To show that maximizing total utility requires equalizing the marginal utility per dollar spent on each good, work with the case when they are not equal. Suppose the margin
24、al utility per dollar spent on a movie is 20 and the marginal utility per dollar spent on a soda is 10. Ask “If you gained an additional dollar, what would you spend it on and how much would your total utility increase?” The students will spend it on movies and their total utility will rise by 20. N
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