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Utility Maximization
AP Microeconomics · Unit 1 Basic Economic Concepts
Learning Objectives
Total Utility: The total satisfaction from consuming a good. Initially rises but at a decreasing rate.
Marginal Utility: The ADDITIONAL satisfaction from consuming ONE MORE unit. Diminishes with each additional unit consumed (Law of Diminishing MU).
Utility Maximizing Rule: Allocate spending so that MUₐ/Pₐ = MU_b/P_b for all goods. This equalizes the "bang per buck" across all purchases.
Consumer Equilibrium: At equilibrium, no reallocation of spending can increase total utility — the consumer is getting maximum satisfaction from their budget.
Tags
UtilityMarginalConsumerDiminishing
Parameters
Quantity = 5 units
Price = $2
UTILITY TABLE
Total Utility:0
Marginal Utility:0
MU/P:0
Consumer Surplus:$0
Law of Diminishing Marginal Utility: The first slice of pizza brings immense satisfaction. By the 5th slice, each additional one adds less and less satisfaction. The rational consumer stops when MU/P drops to zero — buying more would decrease total utility!