Overview
This lecture introduces the concept of utility in economics, explains how utility can be measured, and demonstrates the idea of marginal utility using the example of scoops of ice cream.
Introduction to Utility
- Utility in economics refers to the measure of usefulness, worth, value, or happiness derived from goods or services.
- Economists attempt to quantify utility, often using an arbitrary unit called a "util."
- Utility can represent satisfaction even if the good has no practical use.
Measuring Utility
- Utility can be illustrated using total utility, represented in utils, for various quantities of a good.
- The absolute numbers for utility are arbitrary; the relative differences between them are important.
Example: Ice Cream Scoops and Utility
- 0 scoops of ice cream = 0 utils.
- 1 scoop = 80 utils (total utility).
- 2 scoops = 140 utils (total utility).
- 3 scoops = 180 utils (total utility).
- 4 scoops = 170 utils (total utility).
- Total utility can decrease if additional units reduce satisfaction.
Marginal Utility
- Marginal utility (MU) is the change in total utility from consuming one more unit of a good.
- MU for first scoop: 80 (80 - 0)
- MU for second scoop: 60 (140 - 80)
- MU for third scoop: 40 (180 - 140)
- MU for fourth scoop: -10 (170 - 180; negative utility)
- Marginal utility usually decreases as more units are consumed.
Key Terms & Definitions
- Utility — A measure of satisfaction or happiness from consuming goods or services.
- Utils — Arbitrary units used to quantify utility.
- Total Utility — The total amount of satisfaction from consuming a certain quantity.
- Marginal Utility (MU) — The additional utility gained from consuming one more unit of a good.
Action Items / Next Steps
- Review the concepts of total utility and marginal utility.
- Prepare for future discussions on how utility concepts influence rational decision-making.