I have a question about the marginal utility theory
If someone is at consumer equilibrium consuming normal goods, will an increase to income increase total utility
consumption of goods?
An increase in income will increase total utility as well as consumption of normal goods. Consumption of inferior goods would decline.
To understand why an increase in income will increase total utility and consumption of normal goods, let's delve into the concept of marginal utility and consumer equilibrium.
The theory of marginal utility states that the satisfaction or utility derived from consuming an additional unit of a good gradually diminishes as more units are consumed. This means that the first unit of a good consumed provides the highest level of satisfaction, and each subsequent unit provides less satisfaction.
Consumer equilibrium is achieved when the consumer allocates their limited income across different goods in such a way that the marginal utility per dollar spent is equal for all goods. In other words, the consumer maximizes their overall satisfaction by distributing their income in a way that ensures they get the most utility from each dollar spent.
Now, let's consider the impact of an increase in income on total utility and the consumption of normal goods. When income increases, the consumer has more purchasing power, enabling them to buy more goods and services. As a result, the consumer can allocate their income in a way that increases their overall satisfaction.
Since normal goods are goods for which demand increases as income rises, an increase in income will lead to an increase in the consumption of normal goods. This occurs because the consumer can now afford to buy more of these goods while still maintaining consumer equilibrium.
By increasing consumption of normal goods, the consumer is able to derive additional satisfaction, leading to an increase in total utility. This is because the consumer is now able to consume more of the goods they enjoy and value.
It's important to note that the impact of an increase in income on total utility and consumption will differ for inferior goods. Inferior goods are goods for which demand decreases as income rises. When income increases, consumers tend to shift their preference from inferior goods to higher-quality alternatives. Therefore, an increase in income would result in a decline in the consumption of inferior goods.
In conclusion, an increase in income will lead to an increase in total utility as the consumer can afford to consume more of the goods they desire, particularly normal goods. This occurs because the consumer can allocate their income in a way that maximizes their overall satisfaction by maintaining consumer equilibrium.