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Marginal utility and decision making

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Using the economists' model of individual choice (comparing the marginal costs and marginal benefits of a choice, incorporating the level of satisfaction or "utility" we derive from the choice, and considering the relative MU/P of a good we buy to that of another), choose, and explain your motivation for four personal decisions you have made in the past year.

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Obviously my purchases will differ from yours. But as an example I will consider the used car I bought last summer. I needed a larger vehicle, since I often have to carry people and things around with me. Newer cars are going to cost more than older ones, but they are more reliable. The marginal utility of the next dollar spend then is what I gain from not having to replace it soon, or have to be making major repairs on it soon. Total utility is what I gain from the entire purchase: being able to do things without borrowing my friend's truck for example. When we divide MU by price, we find the incremental amount of utility each dollar of the purchase gives me. In order to get a feel for ...

Solution Summary

How marginal utility guides our everyday decisions