【正文】 8 UTILITY AND DEMAND 169。 2020 Pearson AddisonWesley 169。 2020 Pearson AddisonWesley You want Ke$ha’s album, Animal. Will you buy the CD album from Amazon for $ or will you download it from the iTunes store for $? What determines our choices as buyers of recorded music? How much better off are we because we can download an album for less than $10 and some songs for less than $1? You know that diamonds are expensive and water is cheap. Doesn’t that seem odd? Why do we place a higher value on useless diamonds than on essentialtolife water? 169。 2020 Pearson AddisonWesley The choices you make as a buyer of goods and services is influenced by many factors, which economists summarize as ? Consumption possibilities ? Preferences Consumption Possibilities Consumption possibilities are all the things that you can afford to buy. Consumption Choices 169。 2020 Pearson AddisonWesley 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 ine, the price of a movie, and the price of soda. When Lisa spends all of her ine, she reaches the limits of her consumption possibilities. Lisa’s budget line shows the limits of her consumption possibilities. Consumption Choices 169。 2020 Pearson AddisonWesley Lisa has $40 to spend, the price of a movie is $8 and the price of soda is $4 a case. Consumption Possibilities 169。 2020 Pearson AddisonWesley Consumption Possibilities Lisa can afford any of the binations at the points A to F. Some goods are indivisible and must be bought in whole units at the points marked. Other goods are divisible goods and can be bought in any quantity. The line through points A to F is Lisa’s budget line. 169。 2020 Pearson AddisonWesley 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. Consumption Possibilities 169。 2020 Pearson AddisonWesley 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. Consumption Choice 169。 2020 Pearson AddisonWesley Table 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. Maximizing Utility 169。 2020 Pearson AddisonWesley Marginal Utility Marginal utility from a good is the change in total utility that results from a unitincrease in the quantity of the good consumed. As the quantity consumed of a good increases, the marginal utility from it decreases. We call this decrease in marginal utility as the quantity of the good consumed increases the principle of diminishing marginal utility. Maximizing Utility 169。 2020 Pearson AddisonWesley Table shows Lisa’s marginal utility schedules. Marginal utility from a good decreases as the quantity of the good increases. For example, as the number of movies seen in a month increases, marginal utility from movies decreases. Maximizing Utility 169。 2020 Pearson AddisonWesley Figure (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. Maximizing Utility 169。 2020 Pearson AddisonWesley Figure (b) illustrates diminishing marginal utility. As Lisa increases the quantity of soda she drinks, her marginal utility from soda diminishes. Maximizing Utility 169。 2020 Pearson AddisonWesley The key assumption is that the household chooses the consumption possibility that maximizes total utility. A Spreadsheet Solution The direct way to find the utilitymaximizing choice is to make a table in a spreadsheet and do the calculations. ?Find the justaffordable binations ?Find the total utility for each justaffordable bination ?The utilitymaximizing bination is the consumer’s choice UtilityMaximizing Choice 169。 2020 Pearson AddisonWesley Find JustAffordable Combinations Lisa has $40 a month to spend on movies and soda. The price of a movie is $8 and the price of soda is $4 a case. Each row of Table shows a bination of movies and soda that exhausts Lisa’s $40. UtilityMaximizing Choice 169。 2020 Pearson AddisonWesley Find the Total Utility for Each JustAffordable Combination When Lisa sees 1 movie and drinks 8 cases of soda a month, she gets 50 units of utility from the 1 movie and 248 units of utility from the 8 cases of soda. Her total utility is 298 units. UtilityMaximizing Choice 169。 2020 Pearson AddisonWesley Consumer Equilibrium Lisa chooses the bination that gives her the highest total utility. Lisa maximizes her total utility when she sees 2 movies and drinks 6 cases of soda a month. Lisa gets 90 units of utility from the 2 movies and 225 units of utility from the 6 cases of soda. UtilityMaximizing Choice 169。 2020 Pearson AddisonWesley Consumer equilibrium is the situation in which Lisa has allocated all of her