Winslow Max and Ruby as babies Dallas Are two dogs better than one Marginal utility Why individual s demand curves are often downward sloping Whatever that means The big picture We get pleasure from things But we get sated and get less and less additional pleasure the more we already have This is diminishing marginal utility Because of this we will buy more of anything only at ever decreasing price Individual demand curves are downward sloping In the orthodox model aggregate demand curves are the sum of the individual curves This requires an extreme assumption of independence of individual choice Marginal utility diminishes because of satiation Marginal utility is the extra pleasure we get from consuming one more thing It diminishes because we become sated we have had enough I could never tire of some things Marginal Utility diminishes The more you have the less you want more Things are less exciting when you have a lot The first time is GREAT The second time is Wonderful The third time is really good The fourth time is nice The fifth time I have a headache Even sex drugs and rock and roll get old Would you ever get tired of Chocolate 1 Yes enough is enough 2 No I could never get enough I could have asked about other things But I don t think that the administration would approve How many times have you read the Harry Potter books Once Twice Three times More Why did you stop Who stopped Beowulf gets bored when I talk about Economics My daughters also get bored But they don t get pictures Quick ARE YOU BORED A graph of diminishing marginal utility About here you barf How much will you drink I hope not this much I suspect that diminishing returns set in a while ago So why did he keep drinking Even if the drinks were free shouldn t he have stopped Drink until MU cost of wine Drink whenever the MU is at least as great as the cost Don t drink where MU is less than the cost The Faux punchline Demand curve is downward sloping Your individual demand curve for wine is downward sloping Careful This does not mean that the community s demand curve is downward sloping Buy where MU price Higher prices higher MU less wine Lower prices lower MU more wine Not all products have diminishing marginal utility Be careful of those that don t unless you like rehab If everyone acts the same in society as they would outside then total demand at any price would be the sum of individual demands Hint People are not like this The orthodox idea Assuming that everyone is alike and no one influences anyone else the aggregate demand curve is the sum of individual demand curves This way we need to know only one thing How one person values things The orthodox assume everyone else is the same and the total is the sum of all the individuals Are we all like him Aggregation works for sociopaths Our consumption is completely asocial it is between us and a material good without any social interaction Masturbation not sex We have perfect knowledge of what we are buying or at least are not at all influenced by others It works if you live in a shell If these conditions do not hold then aggregate demand curves may not slope down And raising prices may increase demand for a product That would be strange Life is like that sometimes Robinson Crusoe s life was strange He lived all alone But at least his demand curves sloped down P Robinson Crusoe s demand for coconuts Q How much would you pay for the third scoop of coconut ice cream 1 Less than the first 2 The same as the first 3 More than the first because I found that I really like it 4 Never had it don t know Here s how you figure it out You will pay up to the MU for that scoop MU is the change in total utility The MU of the first is 15 The MU of the second is the change or 27 15 12 The MU of the third is 36 27 9 You will pay 9 for the third scoop Scoop Total Marginal pleasure utility 1 15 2 27 3 36 4 42 5 45 6 45 7 42 8 36 Another one Roses Happiness Marginal Utility 1 16 00 16 00 0 16 00 2 30 50 30 50 16 00 14 50 3 43 50 43 50 30 50 13 00 4 55 00 55 00 43 50 11 50 5 65 00 65 00 55 00 10 00 6 73 50 73 50 65 8 50 7 80 50 80 50 73 50 7 00 8 86 00 86 00 80 50 5 50 9 90 00 90 00 86 00 4 00 10 92 50 92 50 90 00 2 50 Girls love them Demand curve how much you will buy at any price At 15 you will buy only one scoop At 12 the second scoop is a good buy At 3 you ll buy 5 scoops Maybe give one to the dog Your demand is the same as your MU How much will the community buy If there are 100 people and you assume that they are all like you then multiply the number of scoops at any price by 100 You Community 1 2 3 4 5 Price 100 200 300 400 500 15 12 9 6 3 Take away points Marginal utility slopes down because of satiation Individual demand curves slope down because of diminishing marginal utility If we are not influenced by what others do then aggregate demand curves are the sum of individual demand curves