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THE PURITAN SAYS:

THE PURITAN SAYS:. TOO MUCH OF A GOOD THING IS …. A SIN. Too much of a good thing is …. Mae West said. BETTER!. THE ECONOMIST SAYS. YES!. BUT…. How much more?. And How much better?. The law of decreasing marginal utility. As total utility increases

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THE PURITAN SAYS:

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  1. THE PURITAN SAYS: TOO MUCH OF A GOOD THING IS …

  2. A SIN

  3. Too much of a good thing is … Mae West said

  4. BETTER!

  5. THE ECONOMIST SAYS

  6. YES! BUT…

  7. How much more? And How much better?

  8. The law of decreasing marginal utility • As total utility increases • marginal utility initially increases and eventually decreases • The NIKE swoosh in reverse

  9. If you’re hungry; that first slice of pizza tastes grrrrreat!!! Its really satisfying, 10 on a scale of ten

  10. And if you really have the munchies the second slice is almost as satisfying as the first

  11. But that third slice … not quite as satisfying

  12. And soon you can’t eat anymore Hopefully you’ll stop before it’s too late

  13. Decreasing marginal utility This is the underlying principle that explains why demand is a downward sloping curve

  14. So what reasoning goes into purchasing 2 or more goods? • You (the consumer) want to consider • Income constraint • Price of each good • Marginal Utility of each good • Marginal Utility of additional purchases of each good

  15. The theory of the Consumer

  16. If the price of two goods (x and y) differ: • Consumers will adjust consumption (purchases) until the marginal utility of the two goods, per dollar spent, are equal. MUxMUy = Px Py

  17. How should Ricardo adjust consumption with a $106.00 income constraint?

  18. How should Ricardo adjust consumption with a $106.00 income constraint?

  19. How should Ricardo adjust consumption with a $106.00 income constraint?

  20. How should Ricardo adjust consumption with a $106.00 income constraint?

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