Principles of Economics 3
Principles of Economics 3
Principles of Economics 3
The choices you make as a buyer or consumer of goods and services are
influenced by many factors, which economists summarize as
Consumption Choices or Preferences.
Consumption Choices
Consumption Choices are all the things that you can afford to buy.
Consumption Bundle
An individual's consumption bundle is the collection of all the goods and
services consumed by that individual.
Consumer Behaviour Model
Marginal utility(MU):
is the change in total utility that results from a one-unit increase in the
quantity of a good consumed.
MU = Change in total utility
Change in quantity
As the quantity consumed of a good increases, the marginal utility from
consuming it decreases.
We call this decrease in marginal utility as the quantity of the good
consumed increases the principle of diminishing marginal utility.
Marginal utility &Total utility
Total utility increases with the
consumption of a good.
Diminishing marginal utility.
Law of Diminishing Marginal Utility
Group X Y MRS
A 1 10 ----------
B 2 6 4
C 3 4 2
D 4 3 1
2-Draw the indifference curve IC
3-Draw the budget line