# 6.1 Consumption choices  (Page 4/22)

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José clearly prefers point Q to point P. Now repeat this step-by-step process of decision making with marginal utilities. José thinks about giving up the third T-shirt and surrendering a marginal utility of 20, in exchange for purchasing two more movies that promise a combined marginal utility of 27. José prefers point R to point Q. What if José thinks about going beyond R to point S? Giving up the second T-shirt means a marginal utility loss of 21, and the marginal utility gain from the fifth and sixth movies would combine to make a marginal utility gain of 23, so José prefers point S to R.

However, if José seeks to go beyond point S to point T, he finds that the loss of marginal utility from giving up the first T-shirt is 22, while the marginal utility gain from the last two movies is only a total of 19. If José were to choose point T, his utility would fall to 100. Through these stages of thinking about marginal tradeoffs, José again concludes that S, with one T-shirt and six movies, is the choice that will provide him with the highest level of total utility. This step-by-step approach will reach the same conclusion regardless of José’s starting point.

Another way to look at this is by focusing on satisfaction per dollar. Marginal utility per dollar is the amount of additional utility José receives given the price of the product. For José’s T-shirts and movies, the marginal utility per dollar is shown in [link] .

José’s first purchase will be a movie. Why? Because it gives him the highest marginal utility per dollar and it is affordable. José will continue to purchase the good which gives him the highest marginal utility per dollar until he exhausts the budget. José will keep purchasing movies because they give him a greater “bang or the buck” until the sixth movie is equivalent to a T-shirt purchase. José can afford to purchase that T-shirt. So José will choose to purchase six movies and one T-shirt.

Marginal utility per dollar
Quantity of T-Shirts Total Utility Marginal Utility Marginal Utility per Dollar Quantity of Movies Total Utility Marginal Utility Marginal Utility per Dollar
1 22 22   22/$14=1.6 1 16 16 16/$7=2.3
2 43 21   21/$14=1.5 2 31 15 15/$7=2.14
3 63 20   20/$14=1.4 3 45 14 14/$7=2
4 81 18   18/$14=1.3 4 58 13 13/$7=1.9
5 97 16   16/$14=1.1 5 70 12 12/$7=1.7
6 111 14   14/$14=1 6 81 11 11/$7=1.6
7 123 12   12/$14=1.2 7 91 10 10/$7=1.4

## A rule for maximizing utility

This process of decision making suggests a rule to follow when maximizing utility . Since the price of T-shirts is twice as high as the price of movies, to maximize utility the last T-shirt chosen needs to provide exactly twice the marginal utility (MU) of the last movie. If the last T-shirt provides less than twice the marginal utility of the last movie, then the T-shirt is providing less “bang for the buck” (i.e., marginal utility per dollar spent) than if the same money were spent on movies. If this is so, José should trade the T-shirt for more movies to increase his total utility. Marginal utility per dollar measures the additional utility that José will enjoy given what he has to pay for the good.

the forces of dd and ss
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it is a Price at which there is no tendency for both the quantity demanded and quantity supplied to change.
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joint demand?
Isma
is when two commodities relate together
Emmanuel
it refers to the demand for two commodities that are jountly consumed or used together
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It is when commodities are used together
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The Four Asian Tigers, Four Asian Dragons or Four Little Dragons, are the economies of Hong Kong, Singapore, South Korea and Taiwan, which underwent rapid industrialization and maintained exceptionally high growth rates between the early 1960s and 1990s.
Napoleon
It is not correct.
Nelly
state ur own na mr correct
Napoleon
who told u?
Napoleon
u are correct
emmanuel
woow I never knew that
Birungi
Foday
a
Foday
what is GDP
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gross domestic product
Tawe
I want to see unemployment essay
hello
Birungi
Inflation is defined as the rise in price of a commodity.
It is defined as the rise in price of a commodity.
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the persistent rise in the prices of goods and services. or commodities.
SULEIMAN
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Yarouh
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Allen
gross domestic product
Annor
GDP stands for Gross Domestic Product
Sande
yes
HlobisileM
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Maxima s below equilibrium. Whilst minima s above. Equilibrium
Afran
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Afran
is the willingness and the ability of a consumer to purchase goods at a given price and at a particular point in time.
Assan
Afran
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3 Reasons.. 1... diminishing marginal utility 2... substitution effect 3...income effect
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ohk
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Monetary policy is an attempt to influence the economy by opera ting in such monetary variables
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Wlcm
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is disutility? is rightly writing?
Yhlas
is it i wanna say
Yhlas
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Oyas
the branch of economics concerned with large-scale or general economic factors, such as interest rates and national productivity.
idk
in other words it is the study of the economic as a whole
idk
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Economic growth is the process whereby the real per capita income of an economy increases over a long period of time.
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what is the generally accepted defination of economics and by who
Economics is defined by Lionel Robbins as a social science which studies human behaviour as a relationship between ends and scarce means which have alternative uses
Tba
Lionel Robbins definition is the best and acceptable definition of Economics.
MUNTARI
Importance of economic
Helps in decision making
MP
I need like 5 importance
Achike
hi
Physcal
Hey
hellow dear.
juwel
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Al-ameen
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MP
it helps an individual in rational decision making process
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Fine and u
Buzabaryaho
how does it make individual in rational dicision making decisions
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if an individual is faced with unlimited wants.
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it also helps an individual in arranging their wants in order of their importance.
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ohk
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ok
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Please what is a scale of preference used for?
it's use for arranging wants in order of their importance.
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in other words when an individual is faced with unlimited wants,scale of preference would help the individual to select the most important wants.
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Thanks
welcome
Assan
what is tourism
Tourism is travel for pleasure or business
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It is the commercial organization and operation of holidays and visits to places of interest.
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who is a price taker?
A price taker is a person or a company who have no control to dictate a prices of a goods or services
Unique
Someone who sets price
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In the trading world, a price taker is a trader who does not affect the price of the stock if he or she buys or sells shares.
Nureni
A price taker refers to a firm or an individual who sets the price of his good and services based on an external factor. In other words he cannot choose and set a price by himself. An example is a firm operating in perfect competition where prices are set through the price mechanism.
Tba
in a common and suitable sense state the law of diminishing returns
The higher the satisfaction derived from a particular commodity,the lower the demand for it but that law doesn't match in some instances.
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state the features of an imperfect competitive market
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@NURENI instance like wat
Unique
imperfect competitive market involves large number of sellers and buyers price makers selling cost product differentiation free entry and exit of a firms
Unique