Jim Whitney Economics 102
 
Maximizing consumer utility (satisfaction)
 
    Goal: Maximize consumer surplus (CS) = TB - TE
    In the top diagram, that means consume the Q* which maximizes the gap between TB and TE.

    Key concepts:
    Marginal benefit (MB) = change in TB from consuming another unit
    Marginal expenditure (ME) = change in TE from buying another unit, which = the price of the item (P)
 
    Optimality condition: buy more until MB = P --> Q*
    In the top diagram, Q* occurs where the slope of TB (MB) = the slope of TE (P).
    In the bottom diagram Q* occurs where MB crosses P.

    Results:
    The consumer's MB curve is the consumer's demand curve (D).
    Consumer surplus:
    In the top diagram: the gap between TB and TE.
    In the bottom diagram: the area between the consumer's demand curve and the price out to the quantity consumed.

    To do:
    1. Label Q*
    2. Given Q*, indicate where CS shows up in both the top and bottom diagrams.