Learning Objectives: Consumer Choice LO1: Explain the law of diminishing marginal utility LO2: Derive a consumers’ purchasing rule which ensures that satisfaction.

Learning Objectives:

Consumer Choice

LO1: Explain the law of diminishing marginal utility

LO2: Derive a consumers’ purchasing rule which ensures that satisfaction is maximized

LO3: Explain how marginal utility theory is applicable to real-world examples

LO4: Provide a theoretical rationale for downward sloping demand curves

CHAPTER 5

5-1© 2012 McGraw-Hill Ryerson Limited

Marginal Utility and Demand

Akio’s Dollar Marginal Utility Demand Curve, Derived

5-2© 2012 McGraw-Hill Ryerson Limited

LO4

Quantity Consumed

$MU

1 $82 53 44 35 26 17 0

Price Quantity Demanded

$10 09 08 17 16 15 24 33 42 51 6

Marginal Utility and Demand

5-3© 2012 McGraw-Hill Ryerson Limited

LO4

Diamond Water Paradox • Why is water (which has a very high value in use)

inexpensive, while diamonds (which have a low value in use) expensive?

• Value in use is reflected in the total utility of a product

• Value in exchange (the price) is determined by its marginal utility.

5-4© 2012 McGraw-Hill Ryerson Limited

LO4