Microeconomics: Consumer Theory
posted by Anonymous .
If the MU per dollar spent on wings is greater than the MU per dollar spent on pizza, JP will spend that dollar on wings because it adds more to his TU than if he spent it on pizza, i.e., he’ll buy more wings and less pizza. Suppose that JP was consuming so that his MUp/Pp > MUw/Pw. Consuming more pizza will ↑ his MUp and consuming fewer wings will decrease his MUw. Remember, we have diminishing MU so more of a good means lower MU, and at lower quantities the MU is higher. JP should keep consuming more pizza and fewer wings until his MUp/Pp = MUw/Pw
where he will then be maximizing his TU.
I don't understand why more of a good decreases MU since in the example, it states that eating more pizza increases MU. Can someone please clarify this part for me? Thanks.
MU = marginal utility
Pp = Price per pizza
Pw = Price per wing
MUp = marginal utility for pizza
MUw = marginal utility for wings
MU in consumption is (almost always) postive but declining. Make a graph, put MUz on the y-axis, put consumption of good z on the x-axis. You should graph a downward sloping relationship, but MU is always positive. That is, each additional unit (bite) of good z adds to total utility, but less than the previous bite.
I hope this helps, if not, repost.
CONSUMING MORE OF ONE GOOD DECREASE MU BECAUSE THE ADDIONAL SATISFACTION YOU GET DECREASE FROM CONSUMING ONE GOOD.