Payday loan advice

The law of diminishing marginal utility helps us understand the law of demand and the shape of the demand curve. The height of an individual’s demand curve at any specific unit is equal to the maximum price the consumer would be willing to pay for that unit- its marginal benefit to the consumer – given the number of units he or she has already purchased. Although marginal benefit is measured in dollars, the dollar amount reflects the opportunity cost of the unit in terms of other goods forgone. If a consumer is willing to pay, at most, $5 for an additional unit of the product, this indicates a willingness to give up, at most, $5 worth of other goods. Because a consumer’s willingness to pay for a unit of a good is directly related to the utility derived from consuming the unit, the law of diminishing marginal utility implies that a consumer’s marginal benefit, and thus the height of the demand curve, falls with the rate of consumption.
Because of the law of diminishing marginal utility, each additional pizza consumed per week will generate less marginal utility for Jones than the previous pizza. For this reason, Jones’s maximum willingness to pay- her marginal benefit- will fall as the quantity consumed increases. In addition, the steepness of Jones’s consumers will spend more time and money to inform themselves when they are buying “big ticket” items such as automobiles or air-conditioning systems than when they are buying pencils or paper towels.
demand curve, or its responsiveness to a change in price its elasticity- is a reflection of how rapidly Jones’s marginal utility diminishes with additional consumption. An individual’s demand curve for a good whose marginal value declines more rapidly will be steeper. Given what we now know about a consumer’s maximum willingness to pay for additional units of a good, we are now in a position to discuss the choice of how many units the consumer will choose to purchase at various prices. At any given price, consumers will purchase all units of a good f o r which their maximum willingness to pay- their marginal benefit- is greater than the price. They will stop at the point where the next unit’s marginal benefit would be less than the price. Although there are some problems related to dividing up certain kinds of goods (for example, it is hard to purchase half a car), we can generally say that a consumer will purchase all units of a good up to the point where the marginal benefit from it equals the price of the good (MB = P).
If the price of frozen pizza were $2.50, Jones would purchase three frozen pizzas per week. Consumer surplus is defined as the difference between the maximum price the consumer is willing to pay and the price actually paid. Jones’s maximum willingness to pay for the first unit is $3.50, which, at a price of $2.50, generates $1.00 of consumer surplus for Jones. When a consumer has purchased all units to the point where MB = iF: total consumer surplus is maximized. It is shown by the total triangular area under the demand curve that lies above the price.
Within this framework, how would a consumer respond to a decline in the price of a good? The consumer will increase purchases to the point where marginal benefit diminishes to the level of the new lower price. If marginal utility declines rapidly with consumption, the consumer will expand his or her purchases only slightly. If marginal utility declines less rapidly, it will take a larger expansion in purchases to reach this point. If the price were to rise, the consumer would cut back on purchases, eliminating those for which marginal benefit were now less than the price. This link between marginal benefit and maximum willingness to pay is the basis for the law of diminishing marginal utility, which underlies a person’s demand curve for a product. The shape and steepness of the curve, for example, depends upon his or her marginal utility.