MICROECONOMICS CHAPTER 6 (Consumer Choice and Demand) NOTES
FALL 2017 Patrick Rasnake
• If a good is offered for free to a rational individual, they will stop consuming it when its marginal utility
gets down to 0.
• The substitution effect describes how a price increase creates incentives for buyers to seek alternatives.
• If the income effect is the only economic principle operating, when price increases the quantity
demanded of an inferior good will increase. (The income effect occurs when a fall in the price of a good
increases consumer’s real income, making them more able to purchase all goods, so the quantity
demanded increases.)
• Total utility depends on individual attitudes and preferences.
• A word that can be substituted for utility is satisfaction.
• Economic analysis of utility assumes that tastes are given and that they are also stable.
• Marginal utility is the additional satisfaction from consuming one more unit of a good.
• Total utility can be measured as the sum of all marginal utilities.
• The basic hypothesis of utility theory states that as more of a commodity is consumed during a given time
period, total utility will increase but marginal utility will eventually decrease.
