Econ 103

Chapter 6
Consumer Behaviour

1. Total utility and marginal utility

(Total) utility – the satisfaction a consumer receives from consuming a good (or service)
Marginal utility – additional satisfaction received from consuming an additional unit of the
product. It is given by the change in total utility divided by the change in units consumed
(MU=ΔTU/ΔQ)

Utility is not directly measurable – there are no measuring units for utility. However, in this
chapter we assign numbers to utility in order to demonstrate some important relationships
between total and marginal utility and to practice the utility maximizing rule.

Utility schedules and graphs – Fig. 6-1

Hamburgers Total utility Marginal utility

0 0
1 10 10
2 18 8
3 24 6
4 28 4
5 30 2
6 30 0
7 28 -2

Relationship between total and marginal utility – when total utility is at a maximum, marginal
utility reaches zero. When total utility declines, marginal utility is negative.

The total utility function is concave – it increases at a decreasing rate when quantity increases
The marginal utility function declines as quantity increases

Learning activity - complete question 2 in the end of the chapter

2. Consumer choice – how do consumers decide how to allocate their consumption of different
goods in such a way as to maximize their utility?

A utility maximizing consumer allocates expenditure (among different goods and services) so
that the marginal utility obtained from the last dollar spent on each product is equal. The
condition required for utility maximization, assuming that a consumer buys only two products (X
and Y) is: MUX/PX = MUY/PY.

Learning activity – to practice the utility maximizing condition, complete questions 3 and 5 in the
end of the chapter.
 Note: If MUX/PX > MUY/PY, it is necessary to increase the expenditure on good X and/or reduce
the expenditure on good Y. These actions will respectively reduce the MU of good X and
increase the MU of good Y due to the negative relationship between MU and units of the good
consumed.

3. Consumer surplus – review from chapter 5.

Learning activity - complete question 4 in the end of the chapter