This document summarizes concepts related to utility maximization and consumer choice theory. It discusses how consumers aim to maximize their total utility subject to a budget constraint by consuming goods until the marginal utility per dollar is equal between goods. When the price of a good changes, it impacts the consumer's optimal choice through substitution and income effects. Utility maximization can help explain various economic behaviors and decisions including demand curves, new product adoption, and even criminal behavior.
Corporate Social Responsibility, CSR amendments under the Companies (Amendment) Act, 2019, Benefits of CSR, Management of Socially Responsible Business, Pyramid of CSR, Economic Responsibility, Legal Responsibility
Ethical Responsibility, Philanthropic Responsibility, discretionary responsibility, Section 135 and Schedule VII of Companies Act, Entries in Schedule VII, Types of CSR activities under Schedule VII of the Companies Act 2013, Business Ethics, CSR of Business Towards Stake Holders, Social Responsibilities of Business Towards Different Stakeholders-SHAREHOLDERS, GOVERNMENT, CUSTOMERS, EMPLOYEES, SOCIETY, Reasons for Businesses to Engage in CSR, Social Responsibility ----
Arguments for/ in favour of Social Responsibility of Business, Social Responsibility ----
Arguments Against Social Responsibility of Business, CSR Activities of Companies
The document outlines general principles of taxation including that taxation is an inherent power of the state to impose contributions for public purposes. It lists the purposes of taxation as raising revenue, distributing wealth, promoting new industries, and protecting local industries. The essential characteristics of a tax include that it is an enforced contribution, generally payable in money, proportionate, and levied by the state on persons or property within its jurisdiction. A sound tax system has three basic principles - fiscal adequacy, equality or justice, and administrative feasibility. Taxes are classified based on subject matter such as personal taxes, property taxes, and excise taxes, and based on who bears the burden such as direct and indirect taxes. Certain entities like religious institutions are exemp
Sustainability And Economic Developmentjohncleveland
The document discusses sustainability and its connections to economic development. It defines sustainability as meeting present needs without compromising future generations' ability to meet their needs. Economic development strategies can support community sustainability initiatives or sustainable business practices. Businesses benefit from improving their environmental performance through eco-efficiency, innovation, and reducing their impacts on natural capital.
This document outlines the key principles of taxation. It defines taxation as the power of the sovereign to impose burdens on subjects within its jurisdiction to raise revenue for government purposes. Taxes are enforced proportional contributions levied by lawmaking bodies based on ability to pay. The document discusses the essential elements of a tax, purposes of taxation including revenue and regulation, and limitations such as the requirement for a public purpose. It also covers the nature, theory, and bases of taxation including the life-blood necessity theory and benefit received principle. Key differences between taxes and related concepts like duties, fees, penalties, and debts are explained. Finally, the document lists the three basic principles of a sound taxation system: fiscal adequacy, equality or justice
TRAGEDY OF COMMON IN THAT THE PEOPLE ARE HOW USE NATURAL RESOURCES HOW CARELESS ABOUT THAT AND HOW ITS EFFECT ON FUTURE, ENVIRONMENT NATURE , HUMAN AND LIVING SYSTEM
The group had some arguments early on about workload distribution, but resolved them for the project's benefit. Their research indicated a market gap for films with female protagonists appealing to ages 16-25. The project's strengths included thorough research and effective scene switching between video camera and present footage. A weakness was a lack of varied shots, as audience feedback noted. Overall, the group worked well together by distributing tasks, though some last-minute tasks caused disagreements. The author is pleased with the final film given the limited time frame.
The document discusses corporate social responsibility (CSR). It begins with a brief history of CSR, noting that while Adam Smith saw businesses as having responsibilities to society, Milton Friedman argued their sole responsibility was maximizing shareholder profits. The document then presents arguments both for and against CSR. Arguments for include addressing social problems through initiatives, improving corporate image and generating long-term profits, and creating a better internal work environment. While some debate the degree of social responsibility for businesses, engaging in CSR can provide benefits to both businesses and society.
Green industry towards green economy in the rmgAyub Ali
This document discusses cleaner production and green industry in the context of Bangladesh's ready-made garment (RMG) sector. It defines cleaner production as a preventative environmental strategy applied to processes, products, and services to increase efficiency and reduce risks. Green industry aims to mainstream environmental considerations into business operations through greening existing industries and creating new green industries. The document outlines cleaner production techniques like reduction, process change, and technology change that can be applied in RMG facilities. It also identifies capacity needs like technological, training, institutional, and government capacity for cleaner production implementation.
Corporate Social Responsibility, CSR amendments under the Companies (Amendment) Act, 2019, Benefits of CSR, Management of Socially Responsible Business, Pyramid of CSR, Economic Responsibility, Legal Responsibility
Ethical Responsibility, Philanthropic Responsibility, discretionary responsibility, Section 135 and Schedule VII of Companies Act, Entries in Schedule VII, Types of CSR activities under Schedule VII of the Companies Act 2013, Business Ethics, CSR of Business Towards Stake Holders, Social Responsibilities of Business Towards Different Stakeholders-SHAREHOLDERS, GOVERNMENT, CUSTOMERS, EMPLOYEES, SOCIETY, Reasons for Businesses to Engage in CSR, Social Responsibility ----
Arguments for/ in favour of Social Responsibility of Business, Social Responsibility ----
Arguments Against Social Responsibility of Business, CSR Activities of Companies
The document outlines general principles of taxation including that taxation is an inherent power of the state to impose contributions for public purposes. It lists the purposes of taxation as raising revenue, distributing wealth, promoting new industries, and protecting local industries. The essential characteristics of a tax include that it is an enforced contribution, generally payable in money, proportionate, and levied by the state on persons or property within its jurisdiction. A sound tax system has three basic principles - fiscal adequacy, equality or justice, and administrative feasibility. Taxes are classified based on subject matter such as personal taxes, property taxes, and excise taxes, and based on who bears the burden such as direct and indirect taxes. Certain entities like religious institutions are exemp
Sustainability And Economic Developmentjohncleveland
The document discusses sustainability and its connections to economic development. It defines sustainability as meeting present needs without compromising future generations' ability to meet their needs. Economic development strategies can support community sustainability initiatives or sustainable business practices. Businesses benefit from improving their environmental performance through eco-efficiency, innovation, and reducing their impacts on natural capital.
This document outlines the key principles of taxation. It defines taxation as the power of the sovereign to impose burdens on subjects within its jurisdiction to raise revenue for government purposes. Taxes are enforced proportional contributions levied by lawmaking bodies based on ability to pay. The document discusses the essential elements of a tax, purposes of taxation including revenue and regulation, and limitations such as the requirement for a public purpose. It also covers the nature, theory, and bases of taxation including the life-blood necessity theory and benefit received principle. Key differences between taxes and related concepts like duties, fees, penalties, and debts are explained. Finally, the document lists the three basic principles of a sound taxation system: fiscal adequacy, equality or justice
TRAGEDY OF COMMON IN THAT THE PEOPLE ARE HOW USE NATURAL RESOURCES HOW CARELESS ABOUT THAT AND HOW ITS EFFECT ON FUTURE, ENVIRONMENT NATURE , HUMAN AND LIVING SYSTEM
The group had some arguments early on about workload distribution, but resolved them for the project's benefit. Their research indicated a market gap for films with female protagonists appealing to ages 16-25. The project's strengths included thorough research and effective scene switching between video camera and present footage. A weakness was a lack of varied shots, as audience feedback noted. Overall, the group worked well together by distributing tasks, though some last-minute tasks caused disagreements. The author is pleased with the final film given the limited time frame.
The document discusses corporate social responsibility (CSR). It begins with a brief history of CSR, noting that while Adam Smith saw businesses as having responsibilities to society, Milton Friedman argued their sole responsibility was maximizing shareholder profits. The document then presents arguments both for and against CSR. Arguments for include addressing social problems through initiatives, improving corporate image and generating long-term profits, and creating a better internal work environment. While some debate the degree of social responsibility for businesses, engaging in CSR can provide benefits to both businesses and society.
Green industry towards green economy in the rmgAyub Ali
This document discusses cleaner production and green industry in the context of Bangladesh's ready-made garment (RMG) sector. It defines cleaner production as a preventative environmental strategy applied to processes, products, and services to increase efficiency and reduce risks. Green industry aims to mainstream environmental considerations into business operations through greening existing industries and creating new green industries. The document outlines cleaner production techniques like reduction, process change, and technology change that can be applied in RMG facilities. It also identifies capacity needs like technological, training, institutional, and government capacity for cleaner production implementation.
The document discusses several key topics related to agriculture policies and food security in India:
1. It outlines the perspectives of different groups on agriculture like economists, political scientists, scientists, and farmers.
2. It describes the various activities under agriculture like crop cultivation, animal husbandry, fishing, and forestry.
3. It discusses the inputs used for agriculture like seed, nutrients, water, labor, and land and the challenges faced historically like land ownership issues and lack of infrastructure and technologies.
4. It provides an overview of the growth dynamics in Indian agriculture from the pre-green revolution period to the post-reform period and the various policies, initiatives, outcomes, and challenges during each
Changes in climate affects the land and farming immensely. Due to this,the crop growth is affected and results in inadequacy of seasonal crop outcome which does not meet the demands of the living beings. Hence, Climatic change has become a chief issue to be looked forth in order to prevent further threatenings to the livelihood. I have made a gist of the existing issue on climate changes and the insecurities of food resources in India.
The document discusses concepts related to microeconomics and resource allocation. It covers several methods of allocation including command, majority rule, contest, first come first served, and lottery. It then discusses key microeconomic concepts like demand, supply, consumer surplus, producer surplus, and market equilibrium. It also addresses market failures that can lead to underproduction or overproduction like price regulations, taxes/subsidies, externalities, public goods, monopoly, and high transaction costs. Finally, it discusses fairness in markets and different approaches to achieving both efficiency and equity.
This document discusses techniques for analyzing livelihoods and food security/insecurity at the household level. It provides potential indicators that can be used to assess household food security across several categories: demographic indicators like household size and migration patterns; market indicators like income sources, access to credit, land ownership, and sales of assets; proximate indicators like health, education, food stores, and dietary changes. The indicators described can help identify vulnerabilities and coping strategies used by households facing food insecurity.
This document discusses oligopoly, which is a market structure with a few large firms that dominate the industry. It defines oligopoly and lists its key characteristics. It then describes the different types of oligopoly including pure/perfect, differentiated, collusive, non-collusive, open, and closed oligopolies. Barriers to entry in oligopolies are also outlined. Several real-world examples of oligopolistic industries are provided such as smartphones, computers, music, automobiles, soft drinks, airlines, and supermarkets. The document concludes by mentioning two models used to explain oligopoly behavior: the kinked demand model and price leadership model.
This document discusses the impact of rising food prices on consumers. It provides data showing increases in the consumer price index (CPI) for various food categories in Malaysia from May 2012 to May 2013. Rising food prices can negatively impact healthy eating habits and increase the cost of living. They reduce consumer loyalty and prompt more savvy shopping. The causes of high food prices include poor weather conditions, low stock levels, high petroleum prices, and increased biofuels demand. The government responses include maintaining ceiling retail prices for rice and increasing subsidies and production of basic foodstuffs.
The document discusses the impacts of climate change and increasing urbanization. It notes that global climate change and increasing urbanization will require four Earths to sustain human needs by 2100 if no changes are made. It then discusses observed trends in climate change for India such as increasing temperatures, changing precipitation patterns, rising sea levels, and glacier recession. The document also examines the concepts of vulnerability, exposure, sensitivity and adaptive capacity in the context of climate change impacts. Finally, it proposes several adaptation strategies for rural and urban areas, including improved agricultural practices, drought-proofing measures, and sustainable water management.
Social responsibility of business towards different sections of society .Reasons for the development of social responsibility concept,Arguments against social responsibility,
Social activities undertaken by some companies
An oligopoly is a market structure with few dominant firms. Firms in an oligopoly are interdependent and must consider competitors' reactions when setting prices or strategies. While competition can occur, oligopolies sometimes engage in collusive behavior such as tacitly setting prices to maximize profits, restricting output. Examples include industries like airlines, banking, and brewing.
The document discusses isoquant curves and isocost curves.
1. An isoquant curve shows all the combinations of two inputs that can produce the same level of output. It assumes inputs are substitutable to some degree in production.
2. An isocost curve connects all combinations of two inputs that can be purchased with a given budget or expenditure level, based on the prices of the inputs.
3. Firms use isoquant and isocost curves to determine the most cost-effective combination of inputs to achieve a given output level.
Patrick Luganda: Role of the media in climate change adaptationAfricaAdapt
The document discusses the role of media in climate change adaptation and communication. It defines mass media and its ability to shape public perceptions. The media can inform, educate, entertain and advocate. Regarding climate change, the media needs to understand the issues, disseminate information relevant to audiences, and help stimulate action. Specifically, the media should communicate how climate change affects areas like food security and explain concepts like adaptation and mitigation in simple terms. It also discusses challenges like skepticism and the need to build media capacity to effectively report on climate change.
C.S.R: CORPORATE SOCIAL RESPONSIBILITY - All that you Need to Know.Satyaki Chowdhury
This Presentation on CSR will give you the very core idea of what is CSR, how it evolved, what are it's applications, its effect on the aspect of Business & Some examples of CSR's Involvement in and outside India!!!!
Hope you will get a basic idea of CSR from the presentation.
Thank You.
The document compares the views of Milton Friedman and Archie Carroll on corporate social responsibility. Friedman believed the sole responsibility of business is to increase profits for shareholders. Carroll proposed a model where corporations have economic, legal, ethical and philanthropic responsibilities. The document provides examples of organizations applying Friedman's view like Ford Motor Co., and Carroll's view like Microsoft and Google. It concludes that Friedman focused on self-interest while Carroll argued corporations should improve quality of life while being legal and ethical.
This document discusses the concepts of corporate social responsibility (CSR) and the triple bottom line. It provides information on:
- The traditional view that corporations should focus solely on shareholder returns versus a balanced approach of contributing to broader public good.
- Definitions of CSR and the triple bottom line approach, which expands the traditional financial performance framework to also include social and environmental performance.
- The three pillars of the triple bottom line - People, Planet, and Profit - and what each entails in terms of fair labor practices, sustainable environmental practices, and economic value creation for society.
Climate change strategies and policies in ethiopia zewdeazewde alemayehu
1) Ethiopia has developed various policies and strategies to address climate change, beginning with provisions in its constitution guaranteeing environmental rights and sustainable development.
2) Key policies and strategies include the National Adaptation Program of Action, Climate Resilient Green Economy Strategy, and serving as a leader in international climate negotiations.
3) The Ministry of Environment, Forest and Climate Change is responsible for coordinating climate change efforts and ensuring the realization of environmental rights defined in the constitution.
CSR and Stakeholders: definitions, maps, configurations and strategiesFrançois Mangin
CSR & stakeholders:engagement & strategies
Concepts and définitions
Stakeholder role & strategies
The company ans its stakeholders
Stakeholder typologies
Engaging and Managing the stakeholders: three configurations: Strategic design, project implementation, controversies
The State and its stakholders: the company as a stakeholder
Public and private in France and in Unites States
Lobbying: definition and strategies
This document summarizes key concepts from Chapter 7 on utility maximization and consumer behavior. It discusses:
1) The concepts of total utility, marginal utility, and the law of diminishing marginal utility. Consumers seek to maximize total utility subject to their budget.
2) How consumers allocate their budget between goods to equalize marginal utility per dollar spent. This results in the utility-maximizing combination.
3) How changes in prices result in income and substitution effects, causing movement along the demand curve and shifts in the demand curve.
This document discusses the law of diminishing marginal utility. It explains that as consumption of a good increases, the marginal utility obtained from each additional unit decreases. This law explains the downward sloping demand curve. The document also covers total utility, marginal utility, consumer equilibrium, deriving the demand curve, and applications like income and substitution effects. Prospect theory and how people judge gains and losses is also summarized.
The document discusses several key topics related to agriculture policies and food security in India:
1. It outlines the perspectives of different groups on agriculture like economists, political scientists, scientists, and farmers.
2. It describes the various activities under agriculture like crop cultivation, animal husbandry, fishing, and forestry.
3. It discusses the inputs used for agriculture like seed, nutrients, water, labor, and land and the challenges faced historically like land ownership issues and lack of infrastructure and technologies.
4. It provides an overview of the growth dynamics in Indian agriculture from the pre-green revolution period to the post-reform period and the various policies, initiatives, outcomes, and challenges during each
Changes in climate affects the land and farming immensely. Due to this,the crop growth is affected and results in inadequacy of seasonal crop outcome which does not meet the demands of the living beings. Hence, Climatic change has become a chief issue to be looked forth in order to prevent further threatenings to the livelihood. I have made a gist of the existing issue on climate changes and the insecurities of food resources in India.
The document discusses concepts related to microeconomics and resource allocation. It covers several methods of allocation including command, majority rule, contest, first come first served, and lottery. It then discusses key microeconomic concepts like demand, supply, consumer surplus, producer surplus, and market equilibrium. It also addresses market failures that can lead to underproduction or overproduction like price regulations, taxes/subsidies, externalities, public goods, monopoly, and high transaction costs. Finally, it discusses fairness in markets and different approaches to achieving both efficiency and equity.
This document discusses techniques for analyzing livelihoods and food security/insecurity at the household level. It provides potential indicators that can be used to assess household food security across several categories: demographic indicators like household size and migration patterns; market indicators like income sources, access to credit, land ownership, and sales of assets; proximate indicators like health, education, food stores, and dietary changes. The indicators described can help identify vulnerabilities and coping strategies used by households facing food insecurity.
This document discusses oligopoly, which is a market structure with a few large firms that dominate the industry. It defines oligopoly and lists its key characteristics. It then describes the different types of oligopoly including pure/perfect, differentiated, collusive, non-collusive, open, and closed oligopolies. Barriers to entry in oligopolies are also outlined. Several real-world examples of oligopolistic industries are provided such as smartphones, computers, music, automobiles, soft drinks, airlines, and supermarkets. The document concludes by mentioning two models used to explain oligopoly behavior: the kinked demand model and price leadership model.
This document discusses the impact of rising food prices on consumers. It provides data showing increases in the consumer price index (CPI) for various food categories in Malaysia from May 2012 to May 2013. Rising food prices can negatively impact healthy eating habits and increase the cost of living. They reduce consumer loyalty and prompt more savvy shopping. The causes of high food prices include poor weather conditions, low stock levels, high petroleum prices, and increased biofuels demand. The government responses include maintaining ceiling retail prices for rice and increasing subsidies and production of basic foodstuffs.
The document discusses the impacts of climate change and increasing urbanization. It notes that global climate change and increasing urbanization will require four Earths to sustain human needs by 2100 if no changes are made. It then discusses observed trends in climate change for India such as increasing temperatures, changing precipitation patterns, rising sea levels, and glacier recession. The document also examines the concepts of vulnerability, exposure, sensitivity and adaptive capacity in the context of climate change impacts. Finally, it proposes several adaptation strategies for rural and urban areas, including improved agricultural practices, drought-proofing measures, and sustainable water management.
Social responsibility of business towards different sections of society .Reasons for the development of social responsibility concept,Arguments against social responsibility,
Social activities undertaken by some companies
An oligopoly is a market structure with few dominant firms. Firms in an oligopoly are interdependent and must consider competitors' reactions when setting prices or strategies. While competition can occur, oligopolies sometimes engage in collusive behavior such as tacitly setting prices to maximize profits, restricting output. Examples include industries like airlines, banking, and brewing.
The document discusses isoquant curves and isocost curves.
1. An isoquant curve shows all the combinations of two inputs that can produce the same level of output. It assumes inputs are substitutable to some degree in production.
2. An isocost curve connects all combinations of two inputs that can be purchased with a given budget or expenditure level, based on the prices of the inputs.
3. Firms use isoquant and isocost curves to determine the most cost-effective combination of inputs to achieve a given output level.
Patrick Luganda: Role of the media in climate change adaptationAfricaAdapt
The document discusses the role of media in climate change adaptation and communication. It defines mass media and its ability to shape public perceptions. The media can inform, educate, entertain and advocate. Regarding climate change, the media needs to understand the issues, disseminate information relevant to audiences, and help stimulate action. Specifically, the media should communicate how climate change affects areas like food security and explain concepts like adaptation and mitigation in simple terms. It also discusses challenges like skepticism and the need to build media capacity to effectively report on climate change.
C.S.R: CORPORATE SOCIAL RESPONSIBILITY - All that you Need to Know.Satyaki Chowdhury
This Presentation on CSR will give you the very core idea of what is CSR, how it evolved, what are it's applications, its effect on the aspect of Business & Some examples of CSR's Involvement in and outside India!!!!
Hope you will get a basic idea of CSR from the presentation.
Thank You.
The document compares the views of Milton Friedman and Archie Carroll on corporate social responsibility. Friedman believed the sole responsibility of business is to increase profits for shareholders. Carroll proposed a model where corporations have economic, legal, ethical and philanthropic responsibilities. The document provides examples of organizations applying Friedman's view like Ford Motor Co., and Carroll's view like Microsoft and Google. It concludes that Friedman focused on self-interest while Carroll argued corporations should improve quality of life while being legal and ethical.
This document discusses the concepts of corporate social responsibility (CSR) and the triple bottom line. It provides information on:
- The traditional view that corporations should focus solely on shareholder returns versus a balanced approach of contributing to broader public good.
- Definitions of CSR and the triple bottom line approach, which expands the traditional financial performance framework to also include social and environmental performance.
- The three pillars of the triple bottom line - People, Planet, and Profit - and what each entails in terms of fair labor practices, sustainable environmental practices, and economic value creation for society.
Climate change strategies and policies in ethiopia zewdeazewde alemayehu
1) Ethiopia has developed various policies and strategies to address climate change, beginning with provisions in its constitution guaranteeing environmental rights and sustainable development.
2) Key policies and strategies include the National Adaptation Program of Action, Climate Resilient Green Economy Strategy, and serving as a leader in international climate negotiations.
3) The Ministry of Environment, Forest and Climate Change is responsible for coordinating climate change efforts and ensuring the realization of environmental rights defined in the constitution.
CSR and Stakeholders: definitions, maps, configurations and strategiesFrançois Mangin
CSR & stakeholders:engagement & strategies
Concepts and définitions
Stakeholder role & strategies
The company ans its stakeholders
Stakeholder typologies
Engaging and Managing the stakeholders: three configurations: Strategic design, project implementation, controversies
The State and its stakholders: the company as a stakeholder
Public and private in France and in Unites States
Lobbying: definition and strategies
This document summarizes key concepts from Chapter 7 on utility maximization and consumer behavior. It discusses:
1) The concepts of total utility, marginal utility, and the law of diminishing marginal utility. Consumers seek to maximize total utility subject to their budget.
2) How consumers allocate their budget between goods to equalize marginal utility per dollar spent. This results in the utility-maximizing combination.
3) How changes in prices result in income and substitution effects, causing movement along the demand curve and shifts in the demand curve.
This document discusses the law of diminishing marginal utility. It explains that as consumption of a good increases, the marginal utility obtained from each additional unit decreases. This law explains the downward sloping demand curve. The document also covers total utility, marginal utility, consumer equilibrium, deriving the demand curve, and applications like income and substitution effects. Prospect theory and how people judge gains and losses is also summarized.
This document discusses consumer utility theory and how consumers make choices to maximize utility. It introduces concepts like total utility, marginal utility, diminishing marginal utility, and the principle that consumers will allocate their income in a way that equalizes marginal utility per dollar spent. It also examines how changes in a good's price can impact consumer choices through substitution and real income effects. Graphs and examples are provided to illustrate utility maximization and how it determines consumer demand.
The document provides an overview of concepts that will be covered related to demand and supply, including:
1) It begins with an introduction of the derivation of the demand curve from the perspective of individual consumers and their preferences between goods subject to a budget constraint.
2) It then discusses how the aggregation of individual demand curves results in the market demand curve.
3) The document outlines how understanding demand curves can help explain the functioning of competitive markets and determine the position and sensitivity of demand.
This document discusses microeconomics and consumer behavior topics including utility maximization, demand, and consumer choice. It defines key concepts like total utility, marginal utility, and the law of diminishing marginal utility. It provides examples to illustrate these concepts and how consumers make choices to maximize their utility subject to budget constraints. Rational consumers will allocate their limited income between goods in a way that equalizes the marginal utility per dollar between each good. The document also discusses substitution and income effects that occur when prices change.
The document discusses consumer choice and utility analysis. It covers key concepts such as:
- Utility is the satisfaction derived from consumption and is subjective.
- Total utility increases with consumption but at a decreasing rate due to the law of diminishing marginal utility.
- Consumers aim to maximize utility given budget constraints. They allocate spending such that the marginal utility per rupee is equal for all goods consumed.
- Indifference curves illustrate combinations of goods that provide the same utility level. Utility is maximized at the point of tangency between the indifference curve and budget line.
- A reduction in price causes a substitution effect as consumers alter consumption along their original indifference curve, and an income effect as their
1. The document discusses concepts of utility, total utility, marginal utility, and how consumers maximize utility subject to budget constraints. It shows how utility maximization determines consumer demand for goods at different price points.
2. Utility is the satisfaction from consumption, while marginal utility is the change in satisfaction from consuming one more unit. The law of diminishing marginal utility states that additional units of a good provide less additional satisfaction.
3. Consumers maximize utility by equating the marginal utility per dollar spent across goods, purchasing up to the point where marginal utility per dollar is equal for all goods.
The document provides instructions for a decision-making exercise involving a public water supply system. Players will be assigned roles of either Users or a Provider. Users can choose to pay for the service, petition about its performance, or exit to another area. The Provider decides how much of collected fees to invest in maintenance, affecting system performance. Over multiple rounds, players make these choices that determine their earnings, with the goal of maximizing benefits while facing costs and uncertainties about the system. Decision times are limited to help participants experience time pressures involved.
Utility theory holds that consumers seek to maximize their total utility through the consumption of goods and services. While total utility increases with consumption, marginal utility - the additional utility from each additional unit - decreases. This principle of diminishing marginal utility is demonstrated through examples showing that the satisfaction gained from each additional taco consumed decreases as more are eaten. The utility maximization rule states that consumers should allocate their income so that the last dollar spent on each good yields the same marginal utility per dollar, thus maximizing total satisfaction from their budget.
Group A members for the consumer behaviour project are Amana Shahid and Zahra Jamshaid. The document discusses the cardinal approach to consumer behavior, which aims to quantify utility. It defines key concepts like total utility, marginal utility, and the laws of diminishing marginal utility and equi-marginal utility. An example is given to illustrate how the marginal utility of consuming successive units of a good like water decreases as consumption increases.
In this Presentation main headings (utility, total utility, maximizing utility) related to consumer utility can be found.
Also Marginal Decision Rule was analyzed and shown with example.
* It is created by Javid Khasizada and Elgun Shahbazov.
Theory of consumer behavior cardinal approachTej Kiran
This document discusses consumer behavior theory and how consumers make choices under income constraints. It explains that consumers seek to maximize their utility, or satisfaction, from consuming goods and services. Utility is defined as the pleasure or satisfaction derived from consumption. Consumers are constrained by their incomes and must make choices within these limits. The concepts of total utility, marginal utility, diminishing marginal utility, and how consumers allocate their budgets to maximize utility are introduced. Cardinal and ordinal approaches to measuring utility are also outlined. The document provides examples and explanations of the law of diminishing marginal utility and the principle of equimarginal utility as consumers seek to optimize their satisfaction from consumption.
Utility theory examines how consumers derive satisfaction from consuming goods and services. It uses the concepts of total utility, marginal utility, and equi-marginal utility. Total utility is the total satisfaction gained from consumption, while marginal utility refers to the additional satisfaction from consuming one more unit of a good. The law of diminishing marginal utility states that marginal utility decreases with increasing consumption as satisfaction reaches a maximum. The law of equi-marginal utility proposes that consumers maximize satisfaction when the marginal utility per rupee spent is equal across goods, within the constraints of their budget.
Unit 03. Consumers Equilibrium The theory of Consumers Behavior .pptsadiqfarhan2
1) The document discusses consumer theory and how consumers make choices given limited incomes and utility maximization. It explains concepts like utility, marginal utility, total utility, budget constraints, and indifference curves.
2) Consumers derive utility from consuming goods and face diminishing marginal utility. They aim to maximize total utility subject to their budget.
3) When prices change, consumers adjust their consumption to equalize marginal utility per dollar spent on different goods, through income and substitution effects. This is shown through demand curves, budget lines, and indifference curves.
2022 The Theory of Utility .New ppt.pptxJQuanBruce
The document discusses the theory of consumer demand and utility theory. It explains that consumers seek to maximize utility given their budget constraints. There are two approaches to utility - the cardinal and ordinal approaches. The cardinal approach measures utility in "utils" while the ordinal only ranks preferences. The theory of marginal utility states that additional units of a good provide diminishing marginal utility. Consumers seek to equalize marginal utility per dollar across all goods purchased to achieve equilibrium. If the price of a good changes, consumption will adjust until equilibrium is restored.
This document discusses consumer behavior theory and the two approaches to understanding consumer utility - the cardinal and ordinal approaches. It explains key concepts like total utility, marginal utility, indifference curves, and the conditions for consumer equilibrium. The cardinal approach uses measurements of utility to analyze concepts like diminishing marginal utility and the law of equi-marginal utility. The ordinal approach uses indifference curves and budget constraints to show consumer equilibrium without measuring exact utility amounts.
- Farmers can choose to HOLD or PAY fees to maintain shared irrigation infrastructure. PAYING allows higher crop yields if infrastructure is functional, lower if not.
- A provider collects fees and can INVEST in infrastructure or KEEP fees. INVESTING fully functions infrastructure and benefits farmers and provider.
- For the infrastructure to be fully functional, at least two farmers must PAY and the provider must INVEST collected fees. This benefits all by allowing higher crop yields and earnings.
The document summarizes key concepts from Chapter 1 of an economics textbook. It introduces the scarcity principle, which states that resources are limited while wants are unlimited. It describes the cost-benefit principle of only taking actions where benefits exceed costs. Common mistakes in applying this principle are outlined. Opportunity cost and economic incentives are also discussed. Graphs, equations, and tables are used to illustrate economic models and relationships between variables.
The document discusses various concepts related to consumer behavior theory. It begins with the law of diminishing marginal utility (concept 1) and the diamond-water paradox. It then discusses equi-marginal utility (concept 2), consumer surplus (concept 3), indifference curves and their properties (concept 4). It also discusses budget lines (concept 5) and consumer equilibrium where the budget line is tangent to the highest indifference curve (concept 6). Case studies and illustrations are provided for various concepts.
The document discusses concepts related to consumer behavior and utility maximization. It provides examples of how consumers will allocate their budget to maximize total utility based on the principles of marginal utility and diminishing returns. When the price of a good changes, consumers will alter their consumption through income and substitution effects to stay on the highest indifference curve permitted by their new budget constraint. Graphs and algebraic representations are used to derive the demand schedule and demand curve from utility-maximizing choices.
The document discusses monetary policy tools and their effects on economic variables. It describes the Federal Reserve's dual mandate of maximum employment and price stability. The four main tools of monetary policy are open market operations, the discount window, administered rates, and forward guidance. Expansionary monetary policy works to increase money supply and lower interest rates to boost aggregate demand and GDP during recessions. Contractionary policy has the opposite effects to curb inflation. Evaluation of monetary policy addresses its advantages over fiscal policy as well as limitations.
The document summarizes key concepts about money, the money supply, and monetary policy in the United States. It explains that the US dollar is issued by the Federal Reserve and backed by the US government. It describes how the Federal Reserve, made up of the Board of Governors and regional banks, implements monetary policy to control interest rates through managing the money supply. It also outlines how money serves important functions as a medium of exchange, unit of account, and store of value in the US economy.
This document provides an overview of key concepts in financial economics, including:
1) Financial investment involves purchasing financial or real assets with the goal of earning a profit. Popular investments include stocks, bonds, mutual funds, and real estate.
2) The time value of money recognizes that a dollar today is worth more than a dollar in the future due to interest earnings. Present and future value calculations allow comparison of cash flows over time.
3) Investments like stocks, bonds, and mutual funds offer return potential but also come with risk; diversification across multiple assets can help reduce risk. Generally, higher risk investments provide higher potential returns.
This document provides an overview of bond market analysis using the demand-supply framework. It discusses the three approaches to analyzing bond markets (bond market framework, loanable funds framework, and liquidity preference framework) and focuses on the bond market framework. This framework models the bond market as an interaction between the demand for bonds from savers/lenders and the supply of bonds from spenders/borrowers. The document outlines the key determinants of demand and supply, and how shifts in demand or supply curves affect the equilibrium price, quantity, and interest rate in the bond market. It also discusses how secondary bond markets and actions by the Federal Reserve can impact the demand curve.
Econ452 Learning unit 12 - part 2 - 2021 springsakanor
This document provides an overview of internal economies of scale and imperfect competition in international trade. It discusses how internal economies of scale allow some firms to gain cost advantages over others, concentrating production in better performing firms. This concentration improves overall industry efficiency. The document also describes how imperfect competition and product differentiation can lead to intra-industry trade between countries, even without comparative advantage differences. Firms benefit from access to larger integrated markets, while consumers enjoy more variety. Trade integration tends to improve industry performance as best firms expand and worst firms contract.
Econ452 Learning unit 12 - part 1 - 2021 springsakanor
1) The document discusses external economies of scale and how they can lead to increasing returns and changing patterns of international trade.
2) External economies occur when costs decrease as the size of an entire industry increases, rather than for individual firms. They arise from factors like specialized suppliers and labor pooling.
3) Models with external economies show countries specializing based on historical accidents rather than comparative advantage. Trade allows concentrating production where costs are lowest.
Econ452 Learning unit 11 - part 2 - 2021 springsakanor
This document provides an overview of various instruments of trade policy, including non-tariff barriers and their effects. It discusses how quotas, export subsidies, import quotas, and voluntary export restraints influence trade flows and impact welfare. Transportation costs are also examined as they can act as a non-tariff barrier by raising import prices. The impacts of these policies are evaluated in terms of how they affect producer and consumer surplus within countries.
Econ452 Learning unit 11 - part 1 - 2021 springsakanor
This document provides an overview of trade policy instruments like tariffs and their economic effects. It begins by outlining the objectives and introduction. It then defines trade policies and instruments like tariffs, quotas, and subsidies.
It explains how to analyze the effects of tariffs using partial equilibrium models and consumer/producer surplus concepts. Tariffs reduce consumer surplus but increase producer surplus and government revenue. However, they also create deadweight losses that reduce total welfare.
The document compares equilibrium and welfare under autarky, free trade, and a tariff for small and large countries. While a tariff benefits some domestic producers, it reduces total welfare due to higher domestic prices and lower imports/consumption.
This document provides an overview of international trade models and how they can be applied to analyze economic growth and international borrowing/lending. It discusses how balanced and biased economic growth can impact trade patterns and welfare. Biased growth that shifts production more towards a country's export good can lower its terms of trade and immiserize it. The standard trade model is modified to analyze intertemporal trade, where countries can borrow goods today in exchange for goods tomorrow. This allows specialization across time without sacrificing current consumption.
The document summarizes key concepts in macroeconomics including:
- Short-run and long-run aggregate supply curves
- How economies automatically adjust toward full employment equilibrium over time
- Demand-pull and cost-push inflation
- The Phillips curve relationship between inflation and unemployment
- How supply shocks and monetary policy impact the Phillips curve relationship
- Supply-side economics and how fiscal policy can shift aggregate supply
- The Laffer curve relationship between tax rates and tax revenue
This document provides an overview of aggregate demand and aggregate supply models. It discusses the key components of aggregate demand and aggregate supply including:
1) Aggregate demand is determined by consumption, investment, government spending, and net exports and shown as a downward sloping curve. A decrease in aggregate demand can cause recession while an increase can cause inflation.
2) Aggregate supply is determined by costs of production and shown as an upward sloping curve in the short-run and vertical in the long-run. A decrease can cause both recession and inflation known as stagflation.
3) Equilibrium occurs where aggregate demand and supply intersect determining output and price levels. Changes in demand or supply can shift curves
Econ452 Learning Unit 11 - Part 2 - 2020 fallsakanor
This document discusses internal economies of scale and imperfect competition in international trade. It explains that internal economies of scale allow larger firms to have lower costs than smaller firms, leading industries to become imperfectly competitive. This causes some firms to thrive while others contract. The document also describes how imperfect competition can result in intra-industry trade of similar goods between countries. It provides examples of how economic integration through trade agreements has affected industries like automobiles.
Econ452 Learning Unit 11 - Part 1 - 2020 fallsakanor
1) The document discusses how external economies of scale can lead to international trade even when countries have identical production possibilities. With external economies, the production possibilities frontier becomes convex, allowing for gains from specialization and trade.
2) It explains that external economies occur when industry-wide costs decrease as industry size increases, due to factors like specialized suppliers. This can result in one country dominating production of a good globally due to lower costs.
3) The document notes that established industries, even if not the most efficient, may remain dominant due to network effects from their head start, illustrating path dependence in trade patterns from external economies.
Econ452 Learning Unit 10 - Part 2 - 2020 fallsakanor
This document discusses various non-tariff barriers (NTBs) to trade such as quotas, export subsidies, import quotas, and voluntary export restraints. It explains how each of these policies affect trade flows and impact producer surplus, consumer surplus, and national welfare in exporting and importing countries. Specifically, it analyzes the effects of the EU's agricultural export subsidies and the US sugar import quota. It also covers how transportation costs, local content requirements, and technological changes have impacted patterns of international trade over time.
Econ452 Learning Unit 10 - Part 1 - 2020 fallsakanor
This document provides an overview of tariffs as an instrument of trade policy. It discusses:
1. The objectives of understanding tariffs and their effects on trade patterns, welfare, and income distribution.
2. How tariffs work as a tax on imports, affecting supply and demand in domestic and world markets. Tariffs can create costs through deadweight loss.
3. Tools for analyzing the effects of tariffs, including partial equilibrium models and concepts of consumer surplus, producer surplus, and total surplus to measure costs and benefits. Tariffs typically reduce total welfare.
Econ452 Learning Unit 09 - Part 2 - 2020 fallsakanor
This document discusses the standard trade model and equilibrium trade. It covers:
1) The relationship between production possibility frontiers, relative supply curves, preferences, and relative demand curves.
2) How world equilibrium is determined by the intersection of world relative supply and demand.
3) How trade patterns are established based on relative prices and the gains from trade when prices change from the autarky level.
Econ452 Learning Unit 09 - Part 1 - 2020 fallsakanor
The standard trade model is used to determine optimal production and consumption under autarky. It shows that countries will produce more of the good where they have a comparative advantage based on differences in production possibility frontiers or preferences between countries. This leads to different equilibrium relative prices and combinations of goods produced and consumed under autarky in each country. Trade allows both countries to benefit by specializing in their comparative advantage good.
1. The document discusses the Heckscher-Ohlin model of international trade, which predicts that countries will export goods that intensively use their abundant factors of production.
2. The model shows that trade leads to specialization according to comparative advantage and a convergence of factor prices and relative prices between countries.
3. While trade creates overall gains, it also shifts income between factors of production - in labor abundant countries, labor gains and capital loses from trade, and vice versa in capital abundant countries.
This document provides an overview of resources and trade in the long run. It describes factor abundance and factor intensity, and how they relate to differences in resources across countries and production methods. Factor abundance is determined by comparing relative factor prices between countries, while factor intensity is determined by comparing input combinations among products. The document uses isoquant-isocost analysis to show how firms choose optimal input combinations given input prices, and how relative factor prices affect factor demand. It explains the Stolper-Samuelson theorem relating factor prices to good prices, and the Rybczynski theorem relating factor increases to output changes.
The document discusses how international trade affects income distribution through winners and losers both in the short-run and long-run due to changes in relative prices and industry demands for factors of production. While trade creates overall gains, certain groups such as owners of immobile factors in import-competing industries experience losses in real income. Government policies aim to assist negatively impacted groups through retraining programs and income support to ease the costs of trade-induced unemployment and distributional changes.
How Does CRISIL Evaluate Lenders in India for Credit RatingsShaheen Kumar
CRISIL evaluates lenders in India by analyzing financial performance, loan portfolio quality, risk management practices, capital adequacy, market position, and adherence to regulatory requirements. This comprehensive assessment ensures a thorough evaluation of creditworthiness and financial strength. Each criterion is meticulously examined to provide credible and reliable ratings.
1. Elemental Economics - Introduction to mining.pdfNeal Brewster
After this first you should: Understand the nature of mining; have an awareness of the industry’s boundaries, corporate structure and size; appreciation the complex motivations and objectives of the industries’ various participants; know how mineral reserves are defined and estimated, and how they evolve over time.
STREETONOMICS: Exploring the Uncharted Territories of Informal Markets throug...sameer shah
Delve into the world of STREETONOMICS, where a team of 7 enthusiasts embarks on a journey to understand unorganized markets. By engaging with a coffee street vendor and crafting questionnaires, this project uncovers valuable insights into consumer behavior and market dynamics in informal settings."
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
2. Elemental Economics - Mineral demand.pdfNeal Brewster
After this second you should be able to: Explain the main determinants of demand for any mineral product, and their relative importance; recognise and explain how demand for any product is likely to change with economic activity; recognise and explain the roles of technology and relative prices in influencing demand; be able to explain the differences between the rates of growth of demand for different products.
OJP data from firms like Vicinity Jobs have emerged as a complement to traditional sources of labour demand data, such as the Job Vacancy and Wages Survey (JVWS). Ibrahim Abuallail, PhD Candidate, University of Ottawa, presented research relating to bias in OJPs and a proposed approach to effectively adjust OJP data to complement existing official data (such as from the JVWS) and improve the measurement of labour demand.
2. 7-2
Utility (Satisfaction)
• Utility is the satisfaction one gets from
consuming a good or service
• Subjective: vary from one person to
another
• Difficult to quantify
LO1
3. 7-3
Total Utility and Marginal Utility
• Util is one unit of satisfaction or pleasure
• Total utility is the total amount of satisfaction
• Marginal utility is the extra satisfaction from
an additional unit of the good
• MU = ΔTU/ΔQ
LO1
4. 7-4
Law of Diminishing Marginal
Utility
• Law of diminishing marginal utility
• As consumption of a good or service
increases, the marginal utility obtained
from each additional unit of a good or
service decreases
• Explains downward sloping demand curve
LO1
6. 7-6
Theory of Consumer Behavior
• Assumption of Consumer Behavior
Rational behavior: Consumer wants to get “the
most for their money”
⇒ Utility Maximization
• Three factors affecting consumer’s decision
•Preferences
•Budget constraint
•Prices
• For simplicity, only two goodsLO2
9. 7-9
Numerical Example
LO2
The Utility Maximizing Combination of Apples and Oranges Obtainable with an Income of
$10
(2)
Apple (Product A):
Price = $1
(3)
Oranges (Product B):
Price = $2
(1)
Unit of Product
(a)
Marginal
Utility,
Utils
(b)
Marginal Utility
per dollar
(MU/Price)
(a)
Marginal
Utility,
Utils
(b)
Marginal Utility
per dollar
(MU/Price)
First 10 10 24 12
Second 8 8 20 10
Third 7 7 18 9
Fourth 6 6 16 8
Fifth 5 5 12 6
Sixth 4 4 6 3
Seventh 3 3 4 2
10. 7-10
Decision-Making Process
LO2
Sequence of Purchases to Achieve Consumer Equilibrium
Choice
Number Potential Choices
Marginal
Utility
per Dollar Purchase Decision
Income
Remaining
1 First Apple
First Orange
10
12
First orange for $2 $8 = $10 - $2
2 First Apple
Second Orange
10
10
First apple for $1
and Second orange for $2
$5 = $8 - $3
3 Second Apple
Third Orange
8
9
Third orange for $2 $3 = $5 - $2
4 Second Apple
Fourth Orange
8
8
Second apple for $1
and Fourth orange for $2
$0 = $3 - $3
11. 7-11
Budget Constraint and Optimal
Choices
Budget
Allocation
MU/Price TU
Apple Orange Apple Orange Apple Orange Total
0 5 --- 6 0 90 90
2 4 8 8 18 78 96
4 3 6 9 31 62 93
6 2 4 10 40 44 84
8 1 2 12 45 24 69
10 0 0 --- 46 0 46
13. 7-13
Change in Price and Optimal
Choice
• Price of orange
falls to $1
• Optimal
combination is
4 apples and 6
oranges.
Budget Allocation MU/Price
Apple Orange Apple Orange
0 10 --- 0
1 9 10 1
2 8 8 2
3 7 7 4
4 6 6 6
5 5 5 12
6 4 4 16
7 3 3 18
8 2 2 20
9 1 1 24
10 0 0 ---
14. 7-14
Deriving the Demand Curve
$2
1
4
6
Priceperorange
0
$1
$2
4 6
Quantity demanded of oranges
DO
LO3
15. 7-15
Income and Substitution Effects
• Price increase has two effects on quantity
demanded
• Income effect
• A price increase reduces a consumer’s real
income, and decreases a quantity demanded
• Substitution effect
• A price increase makes a product relatively
more expensive, and decreases a quantity
demanded
LO4
16. 7-16
Applications and Extensions
• New products
• iPad
• Diamond-water paradox
• Opportunity cost and time
• Medical care purchases
• Cash and noncash gifts
LO5
17. 7-17
Criminal Behavior
• The criminal attempts to maximize his or her
total utility
• Compares the marginal benefit with the
marginal cost of the unlawful activity
• Most people find the costs too high
• For others, society imposes additional costs
such as fines and imprisonment
• Potential to reduce crime by increasing the
cost of crime
Editor's Notes
In this chapter, the law of diminishing marginal utility is developed, which leads into a detailed discussion of the theory of consumer choice. The numerical illustrations of the utility maximizing rule should be viewed as a pedagogical technique, rather than an attempt to portray the actual choice making process of consumers. When this illustration is explained by “order of purchase,” the brief algebraic summary of consumer equilibrium should pose no great difficulties for most students. The chapter concludes with a discussion of how society might use this theory to reduce criminal behavior.
Utility is a subjective notion in economics, referring to the amount of satisfaction a person gets from consumption of a certain item. Utility and usefulness are not the same thing. Items that are essentially useless can provide a lot of utility.
Utility is measured in utils. Total utility is the total amount of satisfaction one gets from the consumption of a single product or a combination of products. Total utility can be derived by adding up the utils of successive units consumed. Marginal utility refers to the extra utility a consumer gets from one additional unit of a specific product. In a short period of time, the marginal utility derived from successive units of a given product will decline. This is known as diminishing marginal utility.
Although consumers’ wants, in general, are insatiable, wants for specific commodities can be fulfilled. The more of a specific product that consumers obtain, the less they will desire more units of that product. Theory of consumer behavior uses the law of diminishing marginal utility to explain how consumers allocate their income.
Curves TU and MU are graphed from the data in the table. As more of a product is consumed, total utility increases at a diminishing rate, reaches a maximum, and then declines. Marginal utility, by definition, reflects the changes in total utility. Thus, marginal utility diminishes with increased consumption, becomes zero when total utility is at a maximum, and is negative when total utility declines. As shown by the shaded rectangles, marginal utility is the change in total utility associated with each additional taco. Or, alternatively, each new level of total utility is found by adding marginal utility to the preceding level of total utility.
Rational behavior is the assumption that the consumer tries to use his or her money income to derive the greatest satisfaction from it.
Each consumer has clear cut preferences for certain goods and services available in the market and has some idea of how much marginal utility they might get from purchasing and consuming additional units.
At any point in time the consumer has a limited, fixed amount of money to spend.
Every good has a price and prices are unaffected by amounts purchased by the consumer. Goods and services have prices and are scarce relative to the demand for them.
A consumer is in equilibrium when utility is “balanced (per dollar) at the margin.” When this is true, there is no incentive to alter the expenditure pattern unless tastes, income, or prices change. When using the utility maximizing rule, it is important to express the marginal utility of the good as marginal utility per dollar spent since the two goods probably have different prices. Therefore, we can’t just compare utilities otherwise it’s like comparing apples to oranges. So, we have to find the marginal utility per dollar by dividing the marginal utility of the good by the price.
A consumer is in equilibrium when utility is “balanced (per dollar) at the margin.” When this is true, there is no incentive to alter the expenditure pattern unless tastes, income, or prices change. When using the utility maximizing rule, it is important to express the marginal utility of the good as marginal utility per dollar spent since the two goods probably have different prices. Therefore, we can’t just compare utilities otherwise it’s like comparing apples to oranges. So, we have to find the marginal utility per dollar by dividing the marginal utility of the good by the price.
It is assumed in this table that the amount of marginal utility received from additional units of each of the two products is independent of the quantity of the other product. For example, the marginal utility schedule for apples is independent of the number of oranges obtained by the consumer. When determining whether to buy the apples or oranges, we will compare the marginal utility per dollar.
This illustration shows how consumers must choose among alternative goods with their limited money incomes. As long as one good provides more utility per dollar than another, the consumer will buy more of the first good; as more of the first product is bought, its marginal utility diminishes until the amount of marginal utility per dollar just equals that of the other product. This table summarizes the step-by-step decision making process the rational consumer will pursue to reach the utility maximizing combination. The algebraic statement of this utility-maximizing state is that the consumer will allocate income in such a way that: MU of apples/price of apples = MU of oranges/price oranges
At a price of $2 the consumer represented by the data in the table maximizes utility by purchasing 4 oranges. The decline in the price of oranges to $1 disrupts the consumer’s initial utility-maximizing equilibrium. The consumer restores equilibrium by purchasing 6 rather than 4 oranges. Thus, a simple price-quantity schedule emerges, which creates two points on a downsloping demand curve.
The substitution effect and income effect work simultaneously. The income effect is the impact that a price change has on a consumer’s real income and, consequently, on the quantity demanded of the good. If the price of a good falls, income is freed up and can be used to buy more of both, or either, good under consideration. The income effect is shown by the fact that a decline in price expands the consumer’s real income and the consumer can purchase more of this and other products until equilibrium is once again attained for the new level of real income.
The substitution effect is the impact that a change in a product’s price has on its relative expensiveness and on the quantity demanded. If the price of a product falls, this decreases its relative expensiveness and thus the consumer will now substitute more of this good for the other. When the price of an item declines, the consumer will no longer be in equilibrium until more of the item is purchased and the marginal utility of the item declines to match the decline in price. More of this item is purchased rather than another relatively more expensive substitute.
The first touchscreen tablet computer, the iPad, was a new product enormously popular with consumers and perceived by them as having a greater marginal utility to price ratio than other alternative products. This resulted in a major shift in demand for the new product as consumers attempted to increase their total utility.
Why do some goods that are essential to life have low prices and goods that are not essential to life have high prices? The marginal utility of the last unit of water consumed is small because we consume a lot of water. The marginal utility of the last diamond is large because we consume few diamonds.
Time also has a value, so this must be considered in decision making and utility maximization. When time is considered, consumer behavior appears to be much more rational. Highly skilled people, like doctors, earn high wages and therefore incur a higher opportunity cost whenever they use their time in some other way. They are more likely to buy goods over the internet and pay higher prices for things that will save them time. Unskilled workers or retirees have low opportunity costs for their time and therefore will use time to search out ways to save money. They are more likely to search for bargains and take longer trips if it saves them money. Foreigners observe that Americans waste material goods but conserve time. This could be because our high productivity makes our time more valuable than many of the goods we waste.
With medical care purchases we pay an upfront fixed charge each month and this charge is not affected by the amount we consume. The additional marginal benefit is higher than the marginal cost of additional use. This explains why we use so much more than if we had to pay full price.
Noncash gifts result in a loss of utility and we then take action to maximize our utility, such as taking it back and exchanging it, etc. Noncash gifts may yield less utility to the receiver than a cash gift of equal monetary value because the noncash gift may not match the receiver’s preferences. Individuals know their own preferences better than the gift giver.
The cost of criminal activity consists of the guilt one may feel, supplies and tools needed for the crime, and foregone income from lawful activity. These costs are too high for most people. However, for those who find their benefit of crime exceeds these costs of crime, many may be further deterred due to the costs society levies on lawbreakers; namely, fines and possible imprisonment. Economic analysis provides ideas to reduce crime that include ways to increase the cost of crime further. This could be achieved by raising the “guilt” costs through family, educational, and religious efforts; increasing the direct costs that criminal bear by using more sophisticated security systems; increasing the cost incurred from the foregone income due to criminal activity with more educational and training opportunities; adding more police to raise the probability of being caught; and imposing higher penalties on those who are caught. Any one or all of these could thwart crime by raising the marginal cost of that activity to the point that it exceeds the marginal benefit.