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bundle, his B
C
3
marginal
utility per 2 C
dollar spent 1 B MU /P
C C
on clams and P
potatoes 0 1 2 3 4 5
Quantity of clams (pounds)
must be
equal. 10 8 6 4
Quantity of potatoes (pounds)
2 0
Marginal Utility and the Law of
Demand
• Price of fried claims rises.
• Doesn’t change the marginal utility a
consumer gets from an additional pound of
clams at any given level of clam consumption
• But….it reduces the marginal utility per dollar
spent on fried clams
• The decrease in marginal utility per dollar
spent on clams gives the consumer an
incentive to consume fewer clams when the
price of clams rises
Marginal Utility and the Law of
Demand
• Why?
• A utility-maximizing consumer chooses a
consumption bundle for which the marginal
utility per dollar spent on all goods is the
same
• If the MU per dollar spent on clams falls
because the price of clams rises, the
consumer can increase his or her utility by
purchasing fewer clams and more of other
goods
Marginal Utility and the Law of
Demand
• The opposite happens also, if the price of
clams fell
• If that happens, marginal utility per dollar
spend on clams, increases at any given level
of clam consumption
• Consumers can increase his or her utility by
purchasing more clams and less of other
goods when the price of clam falls
Marginal Utility and the Law of
Demand
• When the price of a good increases, an
individual will normally consume less of that
good and more of other goods
MU / P
P P
6
4
B
C
3
2 C
1 B MU /P
P C C
0 1 2 3 4 5
Quantity of clams (pounds)
10 8 6 4 2 0
Quantity of potatoes (pounds)
Marginal Utility and the Law of
Demand
• Price of fried claims rises.
• Doesn’t change the marginal utility a
consumer gets from an additional pound of
clams at any given level of clam consumption
• But….