Chapter III (consumer utility analysis) management economics

First, an overview of utility theory

Utility (Utility) : Consumers in the consumer goods or services feel satisfied.

Effectiveness of 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: complete information Preference Order

Second, the theory of cardinal utility and marginal utility analysis

Cardinal utility and ordinal utility:

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); the use of marginal utility analysis
For example: eat a loaf of bread to get satisfaction is 4 Utils, watching a movie satisfaction is 8 Utils
Ordinal utility theory : produced in the 1930s, the 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 unified in some units out, they can only be arranged according to the degree of personal preferences of consumers has the effect size order; indifference curve analysis using
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).

1, total utility and marginal utility

Total utility (total Utility, TU): the sum of the amount of utility consumers from a number of consumer goods in a given period.

Marginal utility (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.

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.

2, the law of diminishing marginal utility

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.

3, Consumer equilibrium
Consumer equilibrium: the individual consumers to the limited monetary income allocation to maximize the effectiveness of the various commodities traders buy in.

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.

Example: If consumer spending X, Y than the price of the commodity is 1.25, than their marginal utility of 2, to achieve utility maximization, consumers should (by traders to reduce trafficking in X and Y)

4, the individual demand curves derived

Consumers buy goods trafficking is to pay a certain price, and that price is the money. Money also has a utility, and generally assume that a given income consumers in a given period marginal utility of money is fixed.
For example, when a consumer has a 500 yuan, utility per dollar if 15 units of utility, when he spent 400 yuan, 100 yuan for each dollar the rest of the marginal utility of money is still 15 units of utility . When consumers buy a commodity traders can bring greater effectiveness, he's willing to pay, the more money that consumers are willing to pay a higher price; the other hand, when a small utility brought out of the money he is willing to less, that consumers are willing to pay the price is low. With the increase in the number of money due to the consumption of goods to consumers is diminishing marginal utility, therefore, consumers are willing to spend (pay the price) is decreasing.

Consumer surplus : the difference between the price consumers are willing to pay for a commodity with a price when he bought the trafficking of goods actually paid.

For example: a student-traders buy a certain brand of sneakers are willing to pay $ 300, but by Taobao he actually spent only 200 yuan, the students are willing to get this pair of sneakers and more spending but did not actually pay $ 100 to go money is his 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、无差异曲线：表示消费者偏好相同的两种商品的不同数量的各种组合；同一条无差异曲线是表示两种商品的不同数量的组合对消费者所提供的效用是相同的。