ECON 106 1st Edition Lecture 13 Outline of Last Lecture I. ExternalitiesII. Options for Negative Externalities III. Elasticity a. Elasticity of Demandb. Elasticity of Supplyc. Unit Elastic Outline of Current Lecture I. Consumers are…A. Consumer Constraints II. Utility A. Total UtilityB. Marginal UtilityIII. Law of Diminishing Marginal Utility Current LectureConsumers are…- Rational – aware of circumstances, able to rank alternative in order of preference- Self-interested- Acquisitive (more is better)o Maximizer, seeks the best possible outcomeA. Consumer Constraints - Income (budget)- Taste & preference- PricesUtility- Satisfaction - Usefulness- Enjoyment- Pleasure These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- Willingness to pay – measure of how much something is worth to you in dollar terms A. Total Utility (tu)- Utility from a given collection of goods/services- Total willingness to payB. Marginal Utility (mu)- Utility from an additional unit of a good/service - Marginal willingness to pay for an extra good- mu = change in tu / change in units Law of Diminishing Marginal Utility- Sooner or later marginal utility begins to decline - Marginal utility is greater than price, you get what you give