MyEconLab Concept Video
Marginal utility theory helps us to deepen our understanding of the concept of efficiency and to see more clearly the distinction between value and price. Let’s see how.
When Tina allocates her limited budget to maximize her total utility, she is using her resources efficiently. Any other allocation of her budget would leave her able to attain a higher level of total utility.
But when Tina has allocated her budget to maximize her total utility, she is on her demand curve for each good. A demand curve describes the quantity demanded at each price when total utility is maximized. When we studied efficiency in Chapter 6, we learned that a demand curve is also a willingness-to-pay ...