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Producing Hats: Identifying the Types of Inputs and Timely Production
74 Part II: Considering Which Side You’re On in the Decision-Making Process
compared them. And the produce section manager also compares them all the time. At the very least, the manager has to decide how much space to allocate to displaying oranges and apples. And I suspect that the manager allocates more space to the one that makes the store more money.
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It’s crucial for you to recognize that consumers are always comparing different goods. Consumers must decide how much they’re going to buy of each good — how many apples, how many oranges, how many tickets to the baseball game, how many new bicycles . . . the list is never ending.
How much you like apples, oranges, or any other good is based upon the amount of pleasure or satisfaction you get from the good. But instead of using terms like pleasure or satisfaction, economists use the term utility.
Utility is the amount of satisfaction an individual receives from consuming a good.
Economists like to measure everything — even satisfaction. They measure satisfaction using the idea of utils. Thus, an apple might give me 12 utils of satisfaction while an orange gives me 24 utils of satisfaction. Comparing the utils shows that I like the orange twice as much as the apple.
You don’t have to measure everything as precisely as this example indicates. However, using utils makes consumer theory easier to understand.
Adding happiness — at a price
Typically, as you consume a greater quantity of a good, you get more satisfaction. You get satisfaction from the first scoop of ice cream you eat, and you get additional satisfaction from eating a second scoop of ice cream.
Economists call the additional satisfaction or change in satisfaction from an additional unit of the good marginal utility.
Economists also compare your additional satisfaction to the good’s price.
Marginal utility per dollar spent simply equals the good’s marginal utility divided by its price, or
This equation indicates the amount of additional satisfaction you receive when you consume an additional dollar’s worth of the good.
