AP Microeconomics / Unit 1: Basic Economic Concepts
1.6 Marginal Analysis and Consumer Choice
Notes
- Marginal benefit = marginal cost gives the best quantity.
- Diminishing marginal utility: each extra unit adds less satisfaction.
- Utility-maximizing rule: $\displaystyle \frac{MU_A}{P_A}=\frac{MU_B}{P_B}$.
Practice
The third slice of pizza is less satisfying than the first. This is:
Each extra unit adds less.
$MU_A=20$, $P_A=4$; $MU_B=15$, $P_B=5$. To maximize utility, buy more:
5 utils per dollar vs 3.
Keep doing an activity as long as:
Marginal thinking.
Ready for more? Take the Unit 1 test.