10
The Rational Consumer
Utility: Getting Satisfaction
Concerts
(6 @ $40)
$240
Movies
(20 @ $8)
160
Other
Total
1,600
$2,000
A limited income.
The mix of food,
entertainment, etc.
that provides the
greatest benefit.
Utility
Utility
and Marginal Utility:
1550
Marginal Utility
Utility
Movies
1500
1450
1400
1350
1300
19
20
21
1,330
1,390
1,449
22
1,507
MU
61
60
59
58
57
56
20
21
22
No. of movies
23
20
21
22
No. of movies
23
Utility
Utility
and Marginal Utility:
3000
Marginal Utility
Utility
Concerts
2900
2800
2700
2600
2500
5
6
7
2,250
2,550
2,800
8
3,000
MU
350
300
250
200
150
100
6
7
8
No. of concerts
6
7
8
No. of concerts
Budgets and Optimal Consumption
Total Entertainment Budget = $400
Concerts = $40
Movies = $8
Concerts
2
3
4
5
6
7
8
Movies
Total Utility
2 concerts
40 movies
6 concerts
20 movies
10 concerts
0 movies
Conc
1,050 u
2,550 u
3,250 u
Mov
2,380 u
1,390 u
0u
Other
10,000 u
10,000 u
10,000 u
Total
13,430 u
13,940 u
13,250 u
Total Utility
5 concerts
25 movies
6 concerts
20 movies
7 concerts
15 movies
Conc
2,250 u
2,550 u
2,800 u
Mov
1,675 u
1,390 u
1,080 u
Other
10,000 u
10,000 u
10,000 u
Total
13,925 u
13,940 u
13,880 u
Marginal Utility per Dollar
Concerts ($40)
Movies ($8)
Marginal
utility
MU
$
4
400 u
10
10
70 u
8.75
5
350 u
8.75
15
65 u
8.13
6
300 u
7.5
20
60 u
7.5
7
250 u
6.25
25
55 u
6.88
8
200 u
5
30
50 u
6.25
Not enough concerts
Marginal
utility
MU
$
Not enough movies
Just about right
Utility and the Demand Curve
Optimal combos for different concert prices:
Conc
(6@$40) 240
(5@$50) 250
(4@$60) 240
Mov
(20@$8) 160
(23@$8) 184
(27@$8) 216
1,600
1,566
1,544
$2,000
$2,000
$2,000
Other
Total
Less demand as price increases
Law of Demand
Optimal combos for different concert prices:
Conc
(6@$40) 240
(5@$50) 250
(4@$60) 240
Mov
(20@$8) 160
(23@$8) 184
(27@$8) 216
1,600
1,566
1,544
$2,000
$2,000
$2,000
Other
Total
A less enjoyable
bundle of entertainment
And less other stuff.
The Income Effect
More movies
Substitution Effect