The utility function

The utility function

1. THE UTILITY FUNCTION

2. Utility   - is an important concept in economics, because it represents satisfaction experienced by the consumer of a good.

3. TOTAL UTILITY (TU) MARGINAL UTILITY MU

4. Law of Diminishing Marginal Utility In Calvin’s mind

5. CONSUMPTION

6. THE INDIFFERENCE CURVE Useful tool for analyzing consumption behavior on the utility theory MARGINAL RATE OF SUBSTITUTION (MRS) MRS= ∆ Food consumption ∆ clothing consumption

7. Food Consumption Clothing Consumption Marginal Rate of Substitution 56 1 - 46 2 (10) 37 3 (9) 29 4 (8) 22 5 (7) 16 6 (6) 11 7 (5) 8 8 (4) 5 9 (3) 3 10 (2) 2 11 (10

8. THE LAW OF DIMINISHING MARGINAL UTILITY AND THE SHAPE OF THE CURVE