UTILITY AND DEMAND

ECONONE

Utility and Demand

economic term for:

Satisfaction
and
Analysis of Consumers Behavior

Happiness

Two Approaches of Measurement

CARDINAL APPROACH

ORDINAL APPROACH

Quantitative
through UTILS (point system)

Qualitative
through RANKING

Example:
Movies 100 utils
Gym 50 utils
Burger 150 utils
Salad 10 utils
Shirts 70 utils
Concert 90 utils

Example:
Movies 2nd
Gym 5th
Burger 1st
Salad 6th
Shirts 4th
Concert 3rd

TOTAL AND MARGINAL UTILITY

overall satisfaction

additional satisfaction from

consuming another unit of
the same good

10

10

18

24

TOTAL AND MARGINAL UTILITY

overall satisfaction

TU = Sum of MU
(cumulative)

additional satisfaction from

consuming another unit of
the same good

TOTAL AND MARGINAL UTILITY

overall satisfaction

additional satisfaction from

consuming another unit of
the same good

10

10

18

24

TOTAL AND MARGINAL UTILITY

overall satisfaction

additional satisfaction from

consuming another unit of
the same good

Total Utility

Marginal Utility

20
10

15

10

3
4
Quantity

MU

TU

30

5
0
1

3
4
Quantity

Law of Diminishing Marginal Utility

As you consume an additional unit of a good, the

additional satisfaction (MU) you get from it diminishes.

Law of Diminishing Marginal Utility

TU
10

MU
10

18

24

26

26

24

-2

Law of Diminishing Marginal Utility

TU
10

MU
10

18

24

26

26

24

-2

Consumer Equilibrium
If price and income are to be considered, should you
look at MU only in decision-making?

Consumer Equilibrium
If price and income are to be considered, should you
look at MU only in decision-making?

Consumer Equilbrium
Chocolate (Php 2 per piece)
Qty
TU
MU MU/ P
1
200
2
390
3
570
4
740
5
900
6
1030
7
1130
8
1200
9
1240
10
1250

Candy (Php 1 per piece)

Qty
TU
MU
1
200
2
380
3
540
4
680
5
800
6
900
7
980
8
1040
9
1080
10
1100

MU/P

Consumer Equilibrium
YOUR INCOME: Php 8
How many pieces of chocolates and candies will you buy?
Choice MU/P Expenditure

Income
Remaining

MU

TU

Consumer Equilibrium

Occurs when the last MU/P spent is EQUAL across

all goods consumed (and all income has been spent)

Indifference Curve Analysis

Watch Video:
https://www.youtube.com/watch?v=-IzoID3Bx-0