MicroeconomicUTILITYANDDEMAND文件材料.ppt

8;We’ll study the consumption possibilities of Lisa, who buys only two goods: movies and soda. A Consumer’s Budget Line Consumption possibilities are limited by income, the price of a movie, and the price of soda. When Lisa spends all of her income, she reaches the limits of her consumption possibilities. Lisa’s budget line shows the limits of her consumption possibilities.;Lisa has $40 to spend, the price of a movie is $8 and the price of soda is $4 a case. ;Consumption Possibilities;The budget line is a constraint on Lisa’s consumption choices. Lisa can afford any point on her budget line or inside it. Lisa cannot afford any point outside her budget line. ;Preferences The choice that Lisa makes depends on her preferences—her likes and dislikes. Her benefit or satisfaction from consuming a good or service is called utility. Total Utility Total utility is the total benefit a person gets from the consumption of goods. Generally, more consumption gives more total utility. ;Table 8.1 shows Lisa’s total utility schedule. Total utility from a good increases as the quantity of the good increases. For example, as Lisa sees more movies in a month, her total utility from movies increases.;Figure 8.2(a) shows Lisa’s total utility and marginal utility from soda. Total utility from soda increases as more soda is consumed. The bars along the total utility curve show the extra total utility (marginal utility) from each additional case of soda. ;Figure 8.2(b) illustrates diminishing marginal utility. As Lisa increases the quantity of soda she drinks, her marginal utility from soda diminishes.;The key assumption is that the household chooses the consumption possibility that maximizes total utility. A Spreadsheet Solution The direct way to find the utility-maximizing choice is to make a table in a spreadsheet and do the calculations. Find the just-affordable combinations Find the total utility for each just-affordable combination The utility-maximizing combination is the consumer