Unconstrained Consumer Choice
So how much coffee should our desk jockey consume in a typical morning? Assuming that
he does not have to pay for each cup and can freely use the coffee machine, one might
assume that Joe consumes unlimited amounts of coffee. Using Table 7.5 or Figure 7.19, you
can easily see that total utility initially rises, peaks, and then begins to fall as more coffee is
consumed. If Joe is a consumer who seeks to maximize happiness, and this seems a reason-
able aim, he would not consume more than four cups of coffee, even if he were not asked
to pay for each cup.94 á Step 4. Review the Knowledge You Need to Score High
- Even if the monetary price of good X is zero, the rational consumer stops consuming
good X at the point where total utility is maximized.
Diminishing Marginal Utility
In Figure 7.19 you can see a relationship between total utility and coffee consumption.
There is the obvious rise, peak, and fall of total utility as the number of cups increases. But
closer inspection reveals that, as more coffee is consumed, total utility rises at a slower and
slower rate. Since marginal utility is the rate at which total utility changes, marginal utility
must be falling.
The law of diminishing marginal utilitysays that in a given time period, the mar-
ginal utility from consumption of one more of that item falls. A graphical depiction of mar-
ginal utility, also the slope of total utility, is seen in Figure 7.20.Total Utility (“happy points”)01020304050600123456
Cups of CoffeeTU
Total Utility (“happy
points”)TUFigure 7.19Marginal Utility− 15− 10− 505101520250123456Cups of CoffeeMU Marginal UtilityMUFigure 7.20http://www.ebook3000.com