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Chapter 7:
The theory of
demand: the
utility approach
Learning outcomes
Once you have studied this chapter you should be able to
• define utility, marginal utility and weighted marginal utility
• explain the relationship between total, average and marginal
values
• state the conditions for consumer equilibrium
• use weighted marginal utility to derive a demand curve
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Utility
• Cardinal and ordinal utility
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Marginal utility and total utility
Box 7-1 Total, average and marginal magnitudes
(Textbook page 123)
Table 7-1 Thabo Botha’s marginal utility and total utility from the
consumption of apples during a specific period (Textbook page 122)
• A test
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Consumer equilibrium in the utility approach
Table 7-2 Winnie’s scale of preferences in respect of the weekly
consumption of bread, meat and rice (Textbook page 126)
Table 7-3 Possible combinations of bread, meat and rice that can
be bought with R12,00 and the total utility of each combination
(Textbook page 127)
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Derivation of an individual demand
curve for a product
Table 7-4 Helen Meyer’s utility from chocolates and yoghurt (per
week) (Textbook page 127)
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Derivation of an individual demand curve for a product
Figure 7-1 Helen Meyer’s demand curve for chocolates
(Textbook page 128)
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Derivation of an individual demand curve for a product
Table 7-5 Helen Meyer’s utility from the weekly consumption of
chocolates and yoghurt at a lower price of chocolates
(Textbook page 128)
Box 7-2 Possible exceptions to the law of demand
(Textbook page 129)
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Comments on the utility approach
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Important concepts
• Utility
• Cardinal utility
• Ordinal utility
• Total utility
• Marginal utility
• Average utility
• Consumer equilibrium
• Substitution effect
• Income effect
• Snob effect
• Bandwagon effect
• Conspicuous consumption
• Inferior goods
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