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Utility Theory

Utility Theory

Author: Justin Tapp

This lesson will explain Utility Theory

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Notes on "Utility Theory"

Terms to Know

Utility Function 

A formula used to represent consumer preferences; the utility function will result in an indifference curve mapping where each curve corresponds to a higher level of utility.

Indifference Curves

Graphical depiction of the utility function; utility increases as the mapped indifference curves move away from the origin.

Law of Diminishing Marginal Return

At some point, in either production or consumption, the economic agent will experience a decrease in the level of production or utility associated with an increase in the production or consumption of an additional unit.