Behind every supply and demand curve is an army of producers and consumers making their own decisions. For consumers, their decisions are driven, quite simply, by what they want! All consumers make decisions to maximize their utility. In this lecture, we will learn about utility, how to define it and how we represent it mathematically.
How does each slice of pizza you consume impact your utility for the next? Image courtesy of William Jones on Flickr.
Keywords: Consumer theory; preference assumptions; indifference curves; utility functions; marginal utility.
Read the recitation notes, which cover new content that adds to and supplements the material covered in lecture.
Before watching the lecture video, read the course textbook for an introduction to the material covered in this session:
- [R&T] Chapter 7, "The Analysis of Consumer Choice." Sections 7.1, 7.2.1-2, and 7.3.2.
- [Perloff] Chapter 4, "Consumer Choice." (optional)
View Full Video
View by Chapter
- Introduction to Consumer Theory (00:04:39)
Introduction to Consumer Theory
- Consumer Preference Assumptions (00:04:52)
Consumer Preference Assumptions
- Properties of Indifference Curves (00:10:26)
Properties of Indifference Curves
- Utility Functions (00:03:15)
- Marginal Utility (00:09:18)
- Marginal Rate of Substitution (00:15:34)
Marginal Rate of Substitution
This concept quiz covers key vocabulary terms and also tests your intuitive understanding of the material covered in this session. Complete this quiz before moving on to the next session to make sure you understand the concepts required to solve the mathematical and graphical problems that are the basis of this course.
These optional resources are provided for students that wish to explore this topic more fully.
Textbook Study Materials
See the [Perloff] chapter for the topics covered, as well as quizzes, applications, and other related resources.
Other OCW and OER Content
"Axioms of Consumer Preference and the Theory of Choice." (PDF). Lec #3 in 14.03 Microeconomic Theory and Public Policy, Fall 2010.
|MIT OpenCourseWare||Alternative notes with an advanced theoretical approach.|