Microeconomic Aspects
Economics = Social Science
Consumer Behaviour
Demand Curves
Utility Theory
1. Understanding Utility: Total and
Marginal
2. Utility Maximization: Equalizing
Marginal Utility per Rand (MU/PA =
MU/PB)
Def: Satisfaction that person gets from
consumption of goods and services.
Products are bought because it gives
satisfaction / utility.
Usefulness
Measurable (“utils”)
Comparison between products
No comparison between consumers
Def:
Total satisfaction obtained from the
consumption of a product
Def: The extra satisfaction that is
obtained due to a one unit increase in the
quantity of the product consumed.
In other words, the change in Total Utility that
results from the consumption of one more unit
Choc Total Marginal MU/P
consumed Utility Utility
0 0 - -
1 54 54 27
2 102 48 24
3 144 42 21
4 180 36 18
5 210 30 15
6 234 24 12
7 252 18 9
8 264 12 6
Ifa consumer consumes more and more
of a certain product, ceteris paribus, the
marginal utility of that product will
initially rise, reach a maximum and then
decrease.
Total
utility will reach a maximum where
marginal utility = 0
Assumption of rationality of consumers
Optimal utilization of budget
Restrictions: Income, tastes and
preferences & prices of products
Maximum satisfaction is obtained from
limited means when:
MU A MU B
=
PA PB
