First, an overview of utility theory
1, the utility (Utility) : Consumers in the consumer goods or services feel satisfied.
Three characteristics:
- 1, a subjective evaluation of the effectiveness of consumer goods and services.
- 2, the utility of the person, because, because of the different.
- 3, the utility itself does not include value judgments about right and wrong.
The basic assumptions of utility theory
1, complete information
2. Preference Order
Cardinal utility and ordinal utility
1, theory of cardinal utility (the use of marginal utility analysis)
Cardinal utility theory: the formation of the 19th century. Utility is a number of concepts. We believe that the size of a commodity or service effectiveness can be measured by the base (1, 2, · · ·). The unit is a unit to measure utility (Util, Teer).
For example: a satisfying eating bread get is 4 Utils, watching a movie satisfaction is 8 Utils.
2, ordinal utility theory (using indifference curve analysis)
Ordinal utility theory: produced in the 1930s. Utility is a sequence of concept. Believes that the absolute amount of the size of the utility simply can not be measured, can not be represented by some kind of uniform units, they can only be arranged in the order according to the degree of effect size has personal preferences of consumers.
For example: Ake in apple and peach, select the apples, peaches give up. For me, the Apple utility is greater than peaches. Or that Apple utility first (largest), utility peaches second (second place).
Second, the theory of cardinal utility and marginal utility analysis
1, total utility and marginal utility
Total utility (TU): the sum of the amount of utility consumers from a number of consumer goods in a given period.
Marginal utility (MU): refers to the incremental amount of total utility consumers to increase consumption of a unit of a commodity within a certain time obtained. (For example, I eat a bun first obtain 10u, second bun 18u. Marginal utility = 18-10 = 8u)
When MU> 0, the total utility curve rise. It shows that total utility increases as consumption increases, but the rate of increase is diminishing.
When MU = 0, the total utility peaked curve indicates the maximum total utility achieved. This situation means everything possible to satisfy consumers can get from consuming the goods are received.
When MU <0, the total utility curve decreased, with the increase indicates that the total utility consumption is reduced.
The law of diminishing marginal utility: With the increase in the number of consumption, declining marginal utility phenomenon. The size of a marginal utility of a commodity, depending on the size of commodity consumption.
2, consumer equilibrium
Consumer equilibrium: how to assign a single consumer research to maximize the utility obtained in trafficking of various goods to buy the limited money income.
Meaning equilibrium conditions: Consumers make their last dollar spent to bring marginal utility in a variety of commodity traders buy the same, and so on, also known as the principle of marginal utility.
2, consumer surplus
The difference between the price consumers are willing to pay the price for a commodity traders not to buy the product when actually paid: consumer surplus
Third, the curve analysis of ordinal utility theory and indifference
In ordinal utility theory, the utility does not mean that the level of the utility function, do not represent specific values, represent the sequence. Ordinal utility theory with indifference curve analysis to explain consumer equilibrium is achieved
1, no difference in curve
No difference curve: represents the number of different consumer preferences of various combinations of the same two commodities. No difference curve with a utility is a combination of different amounts of the two commodities offered to consumers is the same
Indifference curve properties:
- (1) No difference curve is inclined to the right, a shape convex to the origin point.
- Between the curves can not intersect (2) any two indifference.
- (3) represented by the higher level of utility indifference curves farther away from the origin
2, the marginal rate of substitution (MRS)
1, the marginal rate of substitution (Marginal Rate of Substitution, MRS): In the case of consumers to maintain their utility level unchanged, in order to increase a commodity (X) of another commodity consumption are willing to give up (Y) of Consumption.
3, the consumer's budget line
Budget line (budget line): at a given price and income, all income consumer goods that can be used for a combination of points obtained in the trajectory of consumption.
4, consumer equilibrium
Consumer equilibrium: budget in a given situation, consumer consumption decision by the two commodities make their utility maximization state.
============================= mathematical knowledge =================== =============
1, the data derivation of knowledge:
There is a convenient mathematical method called derivation, to solve the problem of marginal economics.
2, the partial derivation points. Utility function U = XY. X and Y are seeking the marginal utility.
