hello everybody and welcome to lecture videos for chapter six consumer choice so we've diverged in the econ 201 and the econ 100 class so you guys aren't on the same page anymore so this will be module six if you're in the econ 201 class module four if you're in the econ 100 class and so if i accidentally refer to it as one or the other i apologize you know a lot of things going on at once for me um so let's get right into this this is gonna be a shorter series than what you're used to you're gonna have two videos the first one is going to have some definitions and one example and the next one's gonna have another example that's not that the stuff we cover in this chapter isn't complicated and not that it's not difficult it's just there's really just one fundamental question that i want you to be able to solve in here one model i want you to be able to work with and so we're gonna learn some definitions how to approach it but once we've done a couple examples examples of it that's all i need you to do is show me that you understand these this model and so that's why you don't see the long list of videos you've probably gotten used to seeing in this class already okay so let's get right into it um let me start the slideshow oh i just said start from beginning oh no now you guys know all the answers before i even started okay there we go so it's consumer choice um that we're gonna just do the first part consumer choice uh consumption choices we're not gonna not go into detail about how changes in income income and prices affect in some choices um i still have that listed as reading in the book because we're going to touch on that um in your in this lecture the homework but we're not going to get into depth and so i'm not going to cover much in this video and then we are skipping labor leisure choice uh in this uh in our covering of this chapter this semester okay so remember chapter two and we learned about a budget constraint and an opportunity set okay so that should sound familiar this picture should look familiar so and this is an example of jose who has 56 dollars of income that's his budget and he purchased two goods movies for seven dollars and t-shirts for 14 and if you recall the way we got the budget constraint is we just did some simple math we said that all right if he has 56 dollars in income and if a t-shirt costs 14 56 divided by 14 is four and so that's this point here which says he if you spent all of his money on t-shirts you could buy four t-shirts a movie costs 56 divided by seven dollars equals eight so he spent all his money on movies he could buy eight movies and that that that's that point there and a straight line connecting them is the budget constraint we set any point inside what's called the opportunity set okay and we stopped there when we did chapter two and now we're gonna talk about what jose's actual choices are gonna be like what is he gonna choose and how did we frame that choice in a model okay so if jose can choose between points p q r s and t how does he decide which one's the best does he want the one with all the movies the one all the t-shirts three movies and two t-shirts one t-shirt and six movies which of those points would jose is a consumer choose and how does he come to that choice in economics we say that what jose is after is trying to maximize his utility from his decision so you give utility as the total satisfaction derived from the choice of consumption bundle so when jose chooses something when people buy something they do it to make themselves happy right every time you buy something it's to give yourself some sort of pleasure some sort of enjoyment we are going to call that enjoyment utility that is the the formal word we're going to use to describe the satisfaction enjoyment happiness whatever you call call it from buying good or service what you get is utility okay so here are some assumptions we're going to make in our model we're going to assume people and in this case jose can measure their utility okay so as a consumer jose knows how much utility movies and t-shirts gives them and we're going to measure that in units called utils which is a unit of satisfaction or unit of utility that's kind of a silly thing that's kind of a made up economics term but does it reflect a real world idea okay so when you think about what do you want for dinner tonight well you want to order a pizza or get some chinese food um you may not write down how much utility you get but you're thinking about that aren't you aren't you thinking about how happy the pizza would make you versus how happy the chinese food make you versus how happy cooking some um some chicken and beans in your house and make you like i know i'm always thinking about that stuff between cooking and ordering out or where we order i don't all you know i'm always thinking about how happy is it going to make me and my family right so even though we don't put numbers on utility like we are in this model we're always thinking about our own utility and we're going to measure in term in in a unit called mutuals okay an important note is that utility is only used to discuss a person's preference that's why we do utilities so by that i mean is we're going to look at this model and we're going to show different amounts of utility jose is going to get from t-shirts and movies the only use utility is for us for the purpose of this model is to compare two choices so if jose gets a hundred utils from bundle t and 81 utils from bundle p that means he likes t better and remember his goal is to maximize his utility so we don't compare utility from one person to another now you're never gonna get a problem that says jose has a hundred utility utils from this choice and samantha has 75 utils from this choice who likes it better that's not how it works we don't think of it that way we don't think of utility as this way to compare satisfaction between two people okay utility is totally subjective right there are days where you crave one thing more than you crave in another day so utility doesn't only vary from person to person it can vary from day to day or even hour to hour right the next definition i want you to know is marginal utility and you hear the term marginal a lot in this class and marginal means the additional or extra utility provided by one additional unit of consumption so for example if i say that from one slice of pizza i get 10 noodles but when i eat two slices of pizza i get 15 noodles you could infer that the second slice provided five utils that is the marginal utility of the second slice of pizza okay the marginal utility the first slice is 10 the marginal utility of the second slice is five and that's how we derive it 15 total for two slices as mentioned this was brought up in chapter two large utility typically declines as you consume more units of the same good this is called the law of diminishing marginal utility okay so we're in all of our model we're always going to see the law of diminishing marginal utility and what this means is just that as you consume more and more goods of the same unit i'm sorry more and more units of the same good your marginal utility declines that doesn't mean you don't like a second slice of pizza or a third slice of pizza it just means your first slice of pizza is going to give you more utility okay if you consume so much of a good your total utility eventually decreases that means your marginal utility is negative and that certainly can be true you can have too much of a good thing to the point where that becomes a bad thing okay so this is what a question is going to look like you have a table like this where it shows jose's total utility for different uh goods you see that if he buys one t-shirt he gets 22 utility from t-shirts he buys eight t-shirts he gets 133 utility from t-shirts he buys one movie you get 16 utility utils from that movie guys eight movies to get 100 useless from that movie so that's the so if we want to look at a bundle like for example we go back to our notes if we want to look at a bundle like um r there so r is four movies and two t-shirts we would go to our table and say okay if r is four movies and two t-shirts there we go i had to click the anime button four movies and two t-shirts that means he'd get 58 utils from his movies 43 noodles from the t-shirts and that means it's a total of 101 this is the utility he receives from buying that bundle okay so again if you're confused or what the heck these numbers mean they're arbitrary they're subjective they're kind of made up the only use these have is to compare things so if somebody like pretend there's no dollar amount attached to it and someone says to jose would you rather have a t-shirt or a movie this table is going to tell us the answer he'd rather have a t-shirt because t-shirt gives him 22 utils and a movie only gives him 16. of course when you put price in there where it's gonna be a little bit more complicated we're gonna see that as we progress through these slides a disclaimer i don't really like this example it's the one from the book and i've decided to keep it in but i think in the future i'm going to change it um we are going to do another example these notes that i wrote myself and i like a little better okay oh sorry so if we look at those four those five points p p q r s and t and we go to our table and look up how many utils each bundle gives him we see that s six movies and one t-shirt is the one that maximizes utility so by looking at this table and looking at these options we know which option makes jose the happiest it's bundle s and all i did was you saw me do it for bundle four for bundle r was 101 we could do it for any of the others and i add up the total utility and we see the s is the one that makes them the happiness and so we're done this says that jose would like to purchase six movies and one t-shirt okay so i'm actually gonna stop here for uh we're gonna continue this example i think i said that only two there's gonna be three obviously because i'm gonna stop this one uh and and finish this example because i see this the time is getting a little bit late in this video i don't like