What is the marginal utility of a good? Marginal utility theory

The law of decreasing demand in the theory of market economics is associated primarily with the law of diminishing marginal utility. The main concepts of marginal utility theory are: “utility”, “total utility” and “marginal utility”.

Utility is the ability of a product or service to satisfy human needs. Overall usefulness- consumer assessment of the total utility of the purchased quantity of goods or services. Since total utility is a subjective concept, when evaluating identical units (portions) of the same good, it will vary from person to person depending on their tastes and preferences. For example, a textbook on microeconomics has a fairly high usefulness for economics students, but a relatively low usefulness for physics students. Any particular medicine is of great benefit for a certain group of patients, but is useless for healthy people or people suffering from other types of diseases.

The total utility of any good generally increases as the units of that good consumed increase. The first portion of the product provides the consumer with a certain subjective overall utility; a second serving of the same good provides additional utility, and the total utility from consuming two servings increases; the third portion gives a further increase in overall utility, etc. However, the increase in total utility decreases as additional units of a given good are consumed, since they bring less and less satisfaction to the needs of a particular individual and his total need for this good is gradually saturated. Beyond a certain limit, when the need for a given product is completely saturated, its further consumption may result in a decrease in overall utility. This does not exclude a tendency for overall utility to increase in the process of consuming identical additional units of a particular good, but only indicates the limits of this pattern.

The change in total utility is related to marginal utility. Marginal utility(MC) - This is the additional, additional utility received by the consumer from each additional unit of a certain type of product. We can say that marginal utility is the increase, the change in total utility caused by the consumption of each additional unit of a specific product.

Marginal utility is defined as follows:

Where ATU(totalutility) - change in overall utility;

AQ- change in the quantity of consumed products.

With an infinitesimal increase in the quantity of production, the marginal utility of a good can be mathematically represented as a derivative:

Over a relatively short period of time, as long as consumer tastes and preferences do not change, the marginal utility of each subsequent unit of output will decrease. This is due to the fact that the need for this product will gradually be saturated and each subsequent unit will bring less and less satisfaction of needs. For example, if a person consumes the same units of a certain type of apple, then the second apple will obviously bring him less satisfaction than the first, the third - less than the second, etc. In other words, as the number of apples consumed increases, total utility will increase, but the increase in total utility (marginal utility) will decrease. In this regard, at the end of the 19th century. economists formulated law of diminishing marginal utility. It states that as additional units or portions of the same good are consumed, the total utility received by the consumer increases at an increasingly slower rate, i.e. The marginal utility of each subsequent unit or portion decreases.

Let's present this law using conventional digital data and graphically (Table 4.1 and Fig. 4.1).

Table 4.1. Law of Diminishing Marginal Utility

Since utility is a subjective concept, it cannot be measured in any generally accepted units and cannot be accurately quantified, so we use conventional units of utility to characterize real trends in changes in total and marginal utility. Table 4.1 shows that as the quantity of a good consumed increases, the total utility received by the consumer increases, but at an increasingly slower rate, i.e. the increase in overall utility becomes smaller and smaller. Four units of a good give a total utility of 20 cu. e. Five units bring the same total utility, which indicates complete satisfaction of needs for this product.

Rice. 4.1. Graphs of total and marginal utility: A) general utility; b) marginal utility

It is likely that a further increase in the consumption of this product could lead to a decrease in overall utility as a result of an oversaturation of needs. As for marginal utility, it decreases in accordance with the law of diminishing marginal utility. Consuming the first unit of a good gives 10 units. marginal (additional) utility, the second unit - 6 units. etc. The marginal utility of the fifth unit is zero, since it does not bring additional satisfaction - the need for the product is already completely saturated. A further increase in consumption of a given good could lead to negative marginal utility.

Graphically, the effect of the law of diminishing marginal utility is expressed in the fact that the total utility line is convex, since its growth rate slows down, and the marginal utility curve decreases as a result of a decrease in marginal utility as additional units of a given good are consumed.

Since the law of diminishing marginal utility reflects the consumer's subjective assessment of the additional utility of additional units of a particular good, it is not only an economic law, but also a psychological law. It can be considered as a manifestation of the more general law of diminishing marginal effect, which reflects a person’s psychological perception of any processes, phenomena, or events. For example, if you turn on a light bulb in a dark room, a person will notice tangible changes in the lighting that have occurred. If you turn on a second similar light bulb, the additional change in lighting will be less noticeable than in the first case. If you further turn on the third, fourth and subsequent light bulbs, then the marginal effect from this will be less and less. With a certain significant number of light bulbs on, the inclusion of an additional unit may not be noticed at all - the marginal effect will become equal to zero. There are many similar examples.

A graph of diminishing marginal utility resembles a downward sloping demand curve. The difference between them is that when constructing a demand curve, the vertical axis reflects the monetary units of the price, which is objectively formed in the market, and when constructing a graph of marginal utility, the conventional units of subjective marginal utility are reflected. However, according to a number of economists, there is a relationship between both graphs, which manifests itself in the relationship between the law of decreasing demand and the law of diminishing marginal utility.

If each subsequent unit of a good has less and less marginal, or incremental, utility, then the consumer will buy additional units only if their market price decreases. For example, a buyer with a certain monetary income agrees to purchase one portion of ice cream for 15 rubles, but this does not mean that at this price he will buy a second, exactly the same portion, since he will receive less additional utility from its consumption, or less additional meeting your needs. However, if the price for a serving of ice cream drops, say, to 10 rubles, then he will agree to purchase a second serving. The volume of demand will increase.

When considering the law of diminishing marginal utility, we talked about the impossibility of measuring subjective total and marginal utility in any generally accepted units. At the same time, from the point of view of the possibility of determining marginal utility, all economists are divided into cardinalists and ordinalists.

Cardinalists(cardinal - main, main) believed that marginal utility can be measured using, for example, the conventional unit “util”. In their opinion, if the economy implements P consumer goods in quantity xx x2, x3, xP9 then their total utility for the consumer can be represented in the form cardinal utility function:

The marginal utilities of additional units of a good can be represented as partial derivatives of the total utility:

Marginal utilities show by what amount the total utility of the total quantity of goods that a consumer receives changes with an infinitesimal increase. The buyer, according to cardinalists, acts in the market, having certain estimates of the marginal utilities of the goods sold.

Unlike the cardinalists ordinalists(ordinal - ordinal) believe that since marginal utility is a purely subjective category, it cannot be quantitatively measured. They introduce “ordinal utility,” which cannot be used to measure the degree of satisfaction of needs itself, but can determine whether it has increased or decreased. According to ordinalists, the consumer evaluates the utility not of individual goods, but of consumer sets. He can compare the overall utility of different sets of consumer goods and determine which one is more useful to him. For example, a consumer may realistically evaluate that a set of 3 kg of oranges and 2 kg of apples is healthier for him than a set of 2 kg of apples and 3 kg of oranges. However, he does not need to know exactly the total utility of each consumer bundle or any good in this bundle.

Ordinal utility function shows in what order, according to the level of satisfaction of needs, the consumer wants to arrange such sets. It is described by a set of indifference curves, or an indifference map, the analysis of which will be discussed in paragraph 4.6.

In economics, marginal utility is the utility that a person receives from using one more additional unit of a good. As a rule, marginal utility is equal to the ratio of the change in total utility to the change in the quantity of goods.

Steps

Part 1

Utility is the ability of a product or benefit to satisfy some human need. To assess utility, think about how much a consumer is willing to part with to satisfy their needs.

• For example, imagine that you are hungry and buy fish for dinner. Let's say a fish costs $2. If you are so hungry that you are willing to pay $8 for a fish, then the fish is said to be worth $8. In other words, you are willing to pay $8 for a fish to satisfy your hunger (that is, to satisfy your need for food), regardless of how much the fish actually costs.

1. Find the total utility from consuming a certain amount of goods or benefits. Total utility is the sum of the utilities from consuming different goods or a certain amount of one good. In this case, the total utility may be less than, greater than, or equal to the utility when consuming one unit of a good or good.

   • For example, imagine that you are about to eat two fish. But after you eat the first fish, you won't be very hungry anymore, so you'll only be willing to pay $6 for the second fish. This means that the total utility of consuming two fish is valued at $6 + $8 = $14.
   • Please note that it does not matter whether you buy a second fish or not. Marginal utility considers situations in which a consumer is “willing” to pay for some good or benefit. In real life, economists use complex mathematical models to predict how much consumers are willing to pay for a good or benefit.

2. Find the change in total utility from consuming different amounts of goods. To do this, you need to find the utility from consuming each quantity of a good and subtract the resulting values.

   • For our example, let's say you're hungry enough to eat four fish. After the second fish you are already a little full, so you are only willing to pay $3 for the third fish. After the third fish you are full, so you are only willing to pay $1 for the fourth fish. Thus, the total utility of consuming four fish is valued at $8 + $6 + $3 + $1 = $18.

3. Find the ratio of the change in total utility to the change in the quantity of goods/goods, and you will know the marginal utility.

   • In our example, marginal utility is calculated as follows: $18 - $14 = $4 4 - 2 = 2 $4/2 = $2
   • This means that each fish you eat after the second fish is worth $2. This is an average value, since in fact the utility of the third fish is $3, and the utility of the fourth fish is $1.

4. Use the formula to find the marginal utility of each additional unit of a good/good. In the example above, you calculated the average marginal utility of consuming multiple units of a good. This is one way to calculate marginal utility. However, in most cases, the marginal utility of each additional unit of good/good is calculated (the exact, not the average value).

   • To do this, a formula is used that implies that the quantity of goods consumed changes by one unit.
   • In our example, the marginal utility of the first fish is $8 ($8 - $0), the second fish is $6 ($14 - $8), and so on.

5. Use the formula to increase your benefits. In economic theory, consumers make decisions on how to spend money in order to increase the utility of the goods/goods they consume. In other words, consumers want as much satisfaction as possible for their money. This means that consumers will more often purchase goods/goods when the marginal utility of an additional unit of the good is greater than the marginal price (the price of an additional unit of the good).

   • In our example, one fish costs $2, but the marginal utility of the first fish is $8, the second is $6, the third is $3, and the fourth is $1. Given this information, you would not actually buy the fourth fish because its marginal utility ($1) is less than its marginal cost ($2).

   Part 2

   Using the Marginal Utility Table Table: Film Festival Tickets

   Purchased tickets	Overall usefulness	Marginal utility
   1	10	10
   2	18	8
   3	24	6
   4	28	4
   5	30	2
   6	30	0
   7	28	-2
   8	18	-10

   1. Draw a table with three columns: quantity of a good/good, total utility and marginal utility (sometimes tables include more columns, but the classic table described includes the most important information).

      • Please note that the column headings will not always be the same as specified. For example, the “Item Quantity” column may be labeled “Purchased,” “Devices,” and the like.

   2. Pay attention to the downward trend in income. The classic table is used to demonstrate consumer behavior: the more goods are purchased, the less willing consumers are to buy those goods. In other words, once a certain value is reached, the marginal utility of each additional unit of a good begins to decline. In the end, the consumer begins to receive less satisfaction than before purchasing the first additional unit of goods/goods.

      • In our example, the table above shows that marginal utility begins to decrease almost immediately. The marginal utility of each subsequent ticket (starting with the second) is less than the marginal utility of the previous one. From the seventh ticket onwards, marginal utility is negative, meaning the level of satisfaction falls because the consumer is tired of watching the same movies.

   3. Maximize utility at the point where marginal cost is less than marginal utility. The marginal utility table makes it easy to predict how many units of a product will be sold. Recall that consumers will more often buy goods/goods when the marginal utility of an additional unit of goods is greater than the marginal price. If you know the marginal cost of a good, the point at which utility has a maximum value is the last row of the table at which marginal utility is greater than marginal price.

      • Let's say that in our example each ticket costs $3. In this case, utility is maximized when the consumer buys 4 tickets. The marginal utility of the next ticket is $2, which is less than the marginal value of $3.
      • Note that utility is not necessarily maximized when marginal utility is negative. This is possible when the product is valuable to the consumer for some additional properties. For example, the fifth ticket has a marginal utility of $2; this is a positive value of marginal utility, but it reduces total utility because it is “not worth the cost.”

   4. Use data from a classic table to obtain additional information (numerical data) about the model being analyzed. This is especially easy if you work with a spreadsheet editor that does the calculations automatically. Below are two types of data you might want to add in the fourth and fifth column:

Not only in economic theory, but also in life, we often come across such a concept as marginal utility. The Law of Diminishing Marginal Utility is a clear example of the fact that good things are only valued when they are scarce. Why this happens and what we are talking about, we will consider further.

What is marginal utility

Let's first understand what utility is in general. When we go to a store, we evaluate any product in terms of the need for it. If we need bread, we go to the appropriate department. But there is a large selection: white, black, with sesame, with bran. Now we evaluate a product in terms of its usefulness to us. This is how economics explains the usefulness of an item, or, in other words, the degree to which an individual’s needs are satisfied.

But how many loaves of bread will you buy at one time? One? Two? Well, a maximum of three, and only if you have a large family. How much satisfaction will you get from your first loaf? You'll probably eat a few bites with gusto, then a few more to fill you up. Will you be cutting a second loaf? Probably not, because you are full. This reveals the Law of Diminishing Marginal Utility, which states that with each new portion you consume, you get less and less pleasure.

One more example

The rule applies to any area of ​​life. Let's give another very good example. Let's say you've dreamed of a radio-controlled helicopter all your life. All your friends found out about this and decided to give you a birthday present. The first guest came and presented the long-awaited toy. You will probably be in seventh heaven. Then a second friend came and also gave me a similar model. You are happy, but not so happy, because you no longer need the second helicopter. But then another 10 or 20 guests came and they all gave the same toy. Will you be happy with all the other gifts?

This is how marginal utility is expressed. The law of diminishing marginal utility applies always and under all circumstances. There is even a well-known saying about this: “a little of a good thing.”

Total utility graph

We looked at the concept of marginal utility. The Law of Diminishing Marginal Utility cannot be understood without looking at the two graphs. The first concerns overall utility and is as follows.

The vertical axis displays total utility, which is the total satisfaction with all goods consumed. Let's say one 2-course meal brings a total utility of 4, as shown in the graph (Q is the amount of goods consumed). tends to grow until a certain point when saturation occurs.

Marginal utility schedule

Now consider the operation of the law of diminishing marginal utility. Recall that in economic theory, marginal utility is explained as the satisfaction from one additional unit of good. That is, the option is considered when a person is already full, and how much pleasure he will receive after consuming each subsequent unit of good. If we think about it logically, then the marginal utility function in this case should have a decreasing character, which we see in the figure.

Statement of the law

So, summarizing all of the above, we draw a conclusion. The law of diminishing marginal utility means that as the number of units of a good consumed increases, total utility increases, but to a very small extent, and marginal utility decreases.

In other words, the law reflects the relationship between how many units of a good an individual consumed and how much pleasure he received from it. This theory was first considered by the German scientist Hermann Gossen, and therefore the second name of the postulate is the first

Dependence of demand on price

The law of diminishing marginal utility is of great practical importance. Economics considers it from the point of view of its significance for consumer demand. How do total and marginal utilities affect the quantity of a good purchased? Thanks to this analysis, it is possible to regulate prices and force people to take more than they expect. Let's look at a specific example.

Let's say we need apples. For an individual consumer, their value will be expressed by the data given in the table.

Now let’s express these data, but taking into account the money spent on the purchase.

Data analysis

In the first table we see how marginal utility changes. The law of diminishing marginal utility is reflected here in the best possible way. The more apples we buy, the less pleasure we get from each additional unit we eat.

In monetary terms, the situation is repeated. We will buy five apples, they will be useful for us in general, but we will regret that we bought so many, because this money could have been spent on something else. Thus, marginal utility in monetary terms will also decrease.

How does marginal utility change when price changes?

We have already determined that the law of diminishing marginal utility means that with each new unit of a good, its utility will decrease. The same thing happens depending on the price of the product. Let's say one apple from the previous example will cost 5 rubles. If a consumer buys one item, then his total utility and marginal utility will be equal. He does not tolerate losses, and, in other words, what he expects, he pays for.

But what happens if he wants to buy a second apple? The utility of money will remain at the level of 5 rubles, but the utility from the purchase will already decrease and equal 4. 1 ruble of loss is lost. Now the consumer will think about whether he needs two apples if he loses twice as much money, but does not gain any utility from it?

And if we reduce the price of apples, let’s say not 5, but 4? The first apple will bring additional utility, which means it will be transferred to the second apple. But the third one will be at a loss. Let's plot the dependence of consumption on the price level.

In this case, the marginal utility line (marked in red) is the demand line. The lower the price, the greater the chance that the consumer will buy more of the product, even if its utility is not particularly valuable.

Practical use

In practice, we daily encounter examples of price reductions to satisfy consumer desires. Remember how often in a store you see a promotion: “Two for the price of one”? By acting in this way on the mind, smart marketers, using the law of diminishing marginal utility, force us to buy more, without thinking about whether we need this product or not.

Most often, the principle of diminishing marginal utility works well for everyday goods: household chemicals, food. Here we can also assume that the utility from an additional unit will have a low value. But wearing the same clothes will definitely not provide the proper benefit to anyone. Well, why does a girl need two identical blouses? And he won’t give it to a friend, because they will look similar. But all the same, when we see a tempting offer, in most cases we will give up our hard-earned rubles without hesitation.

conclusions

So, it's time to take some stock.

1. In order to properly study demand, it is necessary to take not the totality of goods and consumers, but a specific individual and his preferences for a particular product. So useful. The law of diminishing marginal utility will be calculated as accurately as possible.
2. The basis of the behavior of any person in the market or in a store is his idea of ​​​​the usefulness of the product. It may be different for everyone.
3. Demand, by its very nature, relies entirely on the law of diminishing marginal utility.

Representatives of the quantitative theory of utility (K. Menger, E. Böhm-Bawerk, G. Gossen, etc.) based their reasoning on the following assumptions (hypotheses):

When spending his budget, the consumer seeks to obtain maximum utility (satisfaction) from the goods purchased;

The consumer is able to make a quantitative assessment of the usefulness of goods;

Successively consumed quantities of a good have diminishing utility for the consumer.

Scientists distinguished between total and marginal utility and measured it in conventional units - scraps.

Overall usefulnessT.U. is the satisfaction that a consumer receives from consuming a certain amount of goods. This dependence is expressed by the utility function

T.U. = f(Qi).

Marginal utilityM.U.- This is the additional satisfaction obtained from consuming one more additional unit of a consumed good. It can be determined by two formulas: 1) M.U.(Qi) = 2) as a partial derivative of total utility M.U.(Qi) = .

A graphical representation of the total and marginal utility curves is given in Fig. 3.1. Geometrically, the value of marginal utility is equal to the tangent of the angle of inclination of the tangent to the curve T.U.. The figure shows that when the total utility function reaches its maximum, then at the same time the marginal utility of the product becomes zero.

Principle of Diminishing Utility (Law of Saturation) by needs) called Gossen's first law - after the economist who first formulated it. It contains two provisions: the first states the decrease of subsequent units of a good in one continuous act of consumption, so that, at the limit, complete saturation with this good is achieved; the second indicates a decrease in the utility of the first units of the good with repeated acts of consumption.

Rice. 3.1 - Relationship between total and marginal utility

In ordinary life, each consumer strives to increase the overall utility of the good consumed. The principle of maximization tions overall utility is as follows: every consumer. when purchasing a certain set of goods, he must distribute his income so that the utility of the monetary unit (dollar, ruble, etc.) spent on a particular product is the same. Gossen's second law is the law of equalization of marginal utilities.

Consumer equilibrium condition expressed by the formula

,

where λ is the marginal utility of money;

x,y,p- types of goods purchased.

The last part of the equality can be written as M.U.n= PPλ, T . that is, the marginal utility of a good is equal to the marginal cost of the consumer.

Example 3.1

The consumer is going to purchase, with his income equal to 10 monetary units, a set of two goods: A at a price of 1 monetary unit per piece and IN at a price of 2 monetary units per piece. The usefulness of scrap goods for consumers is presented in the table. It is necessary to find a combination of goods at which the marginal utility of the purchase will be maximum.

Calculation of the maximum total marginal utility from purchasing a set of goods

Solution.

First of all, you should buy 1 piece of product IN for 2 monetary units, since it will provide the highest possible marginal utility of the first purchase per 1 monetary unit.

You can buy a product as a second purchase A or goods IN, since both provide the same marginal utility, equal to 20 utils. If we buy the product A, then the third purchase will be the product IN. So, we spent 5 monetary units on three units of goods. The remaining 5 monetary units will be spent in the following sequence: 4th item - goods IN gives 18 scraps; 5th and 6th pieces - goods A And IN, since they have the same marginal utility. A total of 2 items will be purchased. A and 4 pieces of goods IN. The total marginal utility will be equal to 192 scraps. This is the maximum value of utility.

Ordinal utility theory

The authors of the ordinal direction (F. Edgeworth, E. Slutsky, J. Hicks) proposed measuring subjective utility using preferences. In this case, the consumer needs to make a choice between two sets of consumer goods. This approach is based on the following postulates:

1) the consumer’s preferences have already been formed and ordered;

2) the consumer agrees to give up a small amount of good if he is offered a larger amount of good in return X;

3) the consumer strives to have a larger quantity of any goods and services if he is not satiated with any of them;

4) consumer satisfaction depends only on the amount of goods consumed by him and does not depend on the amount of goods consumed by others.

To study consumer equilibrium, the following concepts are used: indifference curve, marginal rate of substitution, budget line.

Indifference curve U is a model presented in the form of a curve. Each point on the curve represents a set of two goods such that the consumer is indifferent which one to choose. To construct an indifference curve (Fig. 3.2), it is necessary to plot one type of product along the x-axis, and another along the ordinate axis. Points A, B,C, lying on the curve show the bundles that provide the same utility (for example, 10 scraps) for the consumer, and his choice.

The entire set of indifference curves in the space of two goods forms an indifference map. Indifference curves located to the right of the curve U 1 , show a higher level of customer satisfaction.

Rice. 3.2 - Indifference curves

Indifference curves for an individual consumer have the following properties:

1) indifference curves lying above and to the right of the first curve have greater utility;

2) indifference curves have a negative slope;

3) they are convex to the origin;

4) they never intersect.

The main working concept of ordinal utility theory is marginal rate of substitution M.R.S. xy. It shows the amount of good X what a consumer wants to receive in exchange for a unit of good y, so that the level of satisfaction remains unchanged, and is determined by the formula

M.R.S. xy = .

The marginal rate of substitution can take on different values: it can be equal to zero, be constant, or change when moving along the indifference curve. In case of convexity to the origin M.R.S. decreases, i.e. the consumer agrees to give less and less quantity of the substituted good for the same quantity of the substituted one. For two interchangeable goods it remains unchanged. In the case of two complementary goods, the indifference curve takes the form of two mutually perpendicular segments.

The marginal rate of substitution, while showing the possibility of replacing one good with another, does not at the same time allow us to determine which particular set of goods the consumer considers most profitable. This information is provided by budget line I. It is a straight line with a negative slope, graphically representing the set of bundles of two goods that require the same costs to acquire them. The budget line equation is as follows:

I = R X X + R at at ,

Where I- consumer income;

RX- price of the good X;

Pat- price of the good y;

x, y - according to the amount of goods purchased.

This formula can be transformed into a more familiar form

y =A -bXor at= ,

where is the slope of the straight line.

Dot M on the y-axis is determined by dividing income by the price of the product at(Fig. 3.3), if the consumer purchases only one product - plums. Dot N determined by dividing income by the price of the product X subject to the consumer purchasing a tiara X(apples).

Therefore, the budget line MN characterizes real purchasing power and the price ratio of purchased goods.

The point where the budget line touches the indifference curve means consumer equilibrium (see Fig. 3.3). At the point of balance E the marginal rate of substitution is equal to the ratio of prices of goods X And y:

Rice. 3.3 - Consumer equilibrium

A change in the ratio of prices for goods leads to a change in the slope of the budget line.

Example 3.2

The consumer's income spent on two goods (milk and sour cream) is 80 rubles. The price of 1 liter of milk is 8 rubles, the price of 1 kg of sour cream is 20 rubles. Let us assume that in a state of equilibrium the consumer purchases 2 liters of milk and 3.2 kg of sour cream.

Necessary:

a) construct a budget line and determine its angle of inclination;

b) construct a new budget line and determine its slope after increasing the price of sour cream to 25 rubles. per 1 kg while maintaining the same price of milk.

Solution.

1.To build a budget line MN In the figure below, we determine the values ​​of the extreme points of the budget line, located on the abscissa and ordinate axes. Point value M on the ordinate axis we use the budget line equation:

Point value N on the abscissa axis we determine using similar formulas:

I = P x x; y = = = 10.

2.Choose randomly on the budget line MN consumer equilibrium point and construct an indifference curve. The tangency point between the indifference curve and the budget line shows the equilibrium bundle consisting of two goods. According to the graph, the consumer prefers the set E 1, which contains more sour cream and less milk.

3. Determine the slope of the budget line MN two ways. The first method allows you to determine the slope of the budget line using the formula

slope of budget line = = = = 0.4.

The second method involves using the price ratio of goods x And u. Let us determine the slope of the budget line using the formula

slope of the budget line = = = 0,4.

The slope of the budget line at the point of consumer equilibrium shows how many units of the product at the consumer must refuse in order to receive additional units of the product X. In our example, the consumer should give up two units of the product y, to purchase an additional five units of goods X.

4.Increasing the price of sour cream from 20 rubles. up to 25 rub. will cause the point to shift M down. Let's build a new budget line M"N . Point value M" determine by formulas

After the price increase, the consumer will only be able to buy 3.2 kg of sour cream. New budget line M" N will become flatter compared to the budget line MN, and its slope will be equal

The consumer's new equilibrium can be located at any point on the new budget line M" N depending on his preferences. Let's assume that our consumer does not want to change the amount of milk consumed. Then the new equilibrium point will be established at the point E 2 .

Thus, an increase in the price of sour cream, with a constant price of milk and constant consumer preferences, leads him to choose a set containing less sour cream and the same amount of milk.

Using changes in price ratios, scientists constructed a “consumption price” curve. Let us assume that the price of apples decreases from R ] before R 2 , and income is constant. Reducing the price of a product l - with a constant price of the product at and constant income leads to a change in the slope of the budget line MN> (Fig. 3.4, A, b). It becomes longer and with a smaller angle of inclination MN’. For each new budget line, one can find the corresponding indifference curves U 1 ,U 2 , which will touch the budget lines at points E 1 And E 2 . Connecting these points, we get the curve price-consumption G p .

Rice. 3.4 - Relationship between the price-consumption curve ( A)

and the individual demand curve ( b)

Based on the price-consumption curve, a line of individual demand for a product is constructed X. The interaction of these curves shows that the slope of the demand curve depends on consumer preferences.

A change in the price of a good affects the quantity demanded through the substitution effect and the income effect. The first scientist to propose decomposing the total effect of price changes into the income effect and the substitution effect was E. Slutsky, but the approach of J. Hicks is easier to understand.

In Fig. 3.5 at point E 2 a set of products is shown x, y, which the consumer chose as a result of a decrease in the price of the product X. The overall effect was an increase in the number of apples from Q x 1 before Q x 2 , (when abstracting from the effect of product y). This effect is decomposed into two effects: the substitution effect ( Q x 1 - Q x 3 ) and income effect ( Q x 3 - Q x 2 ).

Rice. 3.5 - Total effect decomposition

The utility of a good is the ability of an economic good to satisfy one or more human needs.

As a result of research in the 19th century. a pattern was identified: parts of a good consumed sequentially have diminishing utility for the consumer. This means that any infinitesimal increase in the quantity of good Q corresponds to an increase in total utility (TU). Although total utility gradually increases as the quantity of a good increases, the marginal utility (MU) of each additional unit of a good decreases steadily. The maximum satisfaction of total utility is achieved at the point when MU becomes = 0. This means that the benefit completely satisfies the need.

If further consumption of a good is harmful (MU is negative), then total utility decreases. The more good we have, the less value each additional unit of this good has for us.

Representatives of the Austrian school K. Menger, O. Böhm-Bawerk, F. Wieser were among the first to try to establish a connection between demand and price, stock and quantity. They substantiated the position that quantity is one of the most important factors influencing price in conditions of limited resources.

They discovered a pattern that successively consumed quantities of any good have diminishing utility for the consumer. For example, a thirsty consumer will happily drink the first glass of water. The second glass will bring him less satisfaction than the 1st, the third – less than the 2nd, etc. And this will happen until the MU of the next glass is equal to 0. Although total utility increases, MU falls, which leads to a slowdown in the growth of total utility.

According to this theory, the price of a good for the consumer is determined by marginal utility.

Utility function is a function showing the decrease in the marginal utility of a good (M.U.) with an increase in its quantity (Q):

Modern consumer choice theory assumes that:

1) the consumer’s monetary income is limited;

2) prices do not depend on the amount of goods purchased by individual households;

3) all buyers have a perfect understanding of the MU of all products;

4) consumers strive to maximize total utility.

The theory of consumer choice is based on the following postulates:

1. Multiple types of consumption.

2. Unsaturation. The MU of all economic goods is always positive.

3. Transitivity. The theory is based on the constancy and certain consistency of consumer tastes. Logically, this can be expressed as follows: if A, B and C are combinations of any goods and the consumer is indifferent in the choice between sets A and B and between B and C, then he is also indifferent in the choice between A and C.

4. Substitution. The consumer agrees to give up a small amount of good A if he is offered a larger amount of a substitute good in return.

5. Diminishing marginal utility.

2. Consumer choice

Consumer choice is a choice that maximizes the utility function of a rational consumer under conditions of limited resources (income).

The utility function is maximized when the consumer's monetary income is distributed in such a way that every last ruble spent on the purchase of any good brings the same marginal utility.

Consumer equilibrium is a state in which he buys goods at given prices in such quantities that he spends all his income and maximizes utility.

Consumer equilibrium condition:

where MU i is the marginal utility of the i-th good;

P i is the price of the i-th good.

The ratio between the marginal utilities of any goods is equal to the ratio of their prices:

MU 1: MU 2: … : MU n = P 1: P 2: … : P n .

Let us denote the weighted marginal utility by λ (MU i / P i), this will be the marginal utility of money. Thus, in equilibrium, the marginal utilities of monetary units under different uses are equal. In general, it can be written as follows:

This means that the MU of the good equals the consumer's marginal cost.