1. Chapter 20: Consumer Choice ECON 152 – PRINCIPLES OF MICROECONOMICS Materials include content from Pearson Addison-Wesley which has been modified by the instructor and displayed with permission of the publisher. All rights reserved .

4. Total and Marginal Utility of Watching DVDs Figure 20-1, Panel (a)

5. Total and Marginal Utility of Watching DVDs Total utility is maximized... … where marginal utility equals zero. Marginal Utility (utils per week) 0 1 2 3 5 6 7 -4 -2 2 4 6 8 10 DVDs Watched per Week 4 DVDs Watched per Week Total Utility (utils per week) 0 1 2 3 4 5 6 7 2 4 6 8 10 12 14 16 18 20 Figure 20-1, Panels (b) and (c)

9. Total and Marginal Utility from Consuming DVDs and Pizza Slices on an Income of $26 Total Utility Marginal Utility DVDs of DVDs per Marginal Utility per Dollar per Period (utils) Spent ( MU d /P d ) Period (utils) MU d (Price = $5) 0 0.0 —— —— 1 50.0 50.0 10.0 2 95.0 45.0 9.0 3 135.0 40.0 8.0 4 171.5 36.5 7.3 5 200.0 28.5 5.7 Table 20-1

10. Total and Marginal Utility from Consuming DVDs and Pizza Slices on an Income of $26 Total Utility Marginal Utility Pizza Slices of Pizza Slices Marginal Utility per Dollar per per Period (utils) Spent ( MU p P p ) Period (utils) MU p (price = $3) 0 0.0 —— —— 1 25 25 8.3 2 47 22 7.3 3 65 18 6.0 4 80 15 5.0 5 89 9 3.0 Table 20-1

11. Total and Marginal Utility from Consuming DVDs and Pizza Slices on an Income of $26 0 —— —— 1 10.0 8.3 2 9.0 7.3 3 8.0 6.0 4 7.3 5.0 5 5.7 3.0 Marginal Utility Marginal Utility Items per Dollar per Dollar per Spent (DVD) Spent (Pizza) Period (price = $5) (price = $3) Table 20-1

12. Steps to Consumer Optimum First DVD $26 - $5 = $21 Second DVD $21 - $5 = $16 First pizza slice $16 - $3 = $13 Third DVD $13 - $5 = $ 8 Fourth DVD and $8 - $5 = $ 3 Second pizza slice $3 - $3 = $ 0 Buying Decision Remaining Income Table 20-2

15. How a Price Change Affects Consumer Optimum Income = $26 Q d = 4 MU d P d 36.5 5 = = 7.3 Q p = 2 MU p P p 22 3 = = 7.3

16. How a Price Change Affects Consumer Optimum Assume Price of DVDs Falls to $4 Q d = 4 MU d P d 36.5 4 = = 9.13 Q p = 2 MU p P p 22 3 = = 7.3

17. How a Price Change Affects Consumer Optimum Assume Price of DVDs Falls to $4 Result Buy more DVDs and MU d falls Now MU d P d > MU p P p

18. DVD Rental Prices and Marginal Utility Figure 20-2 3 DVD Rentals per Week 2 1 0 4 5 Price per Unit ($ per DVD) D B A

20. Chapter 20: Consumer Choice ECON 152 – PRINCIPLES OF MICROECONOMICS Materials include content from Pearson Addison-Wesley which has been modified by the instructor and displayed with permission of the publisher. All rights reserved .