1.14 Diminishing Marginal Utility

Question 1

What is marginal utility?

Answer 1

The utility or satisfaction obtained from consuming one extra unit of a good or service

Question 2

What is diminishing marginal utility

Answer 2

As successive units of goods are consumed, the marginal utility gained from each extra unit will fall

Question 3

What is the income effect?

Answer 3

Assuming a fixed level of income, the income effect means that as price falls, the amount that consumers can afford increases, and so demand increases

Question 4

How do you work out total tax revenue?

Answer 4

Tax revenue = tax rate x quantity sold

Question 5

How do you work out government spending on subsidies?

Answer 5

Subsidy rate x quantity sold

Question 6

What is the relationship between the demand curve and marginal utility?

Answer 6

The law of diminishing marginal utility is one of the reasons that the demand curve is downward sloping

Question 7

What does demand equal?

Answer 7

D = MU

Question 8

Utility definition

Answer 8

Another word for the benefit or satisfaction gained from consuming a good or service, so the demand curve is the marginal utility curve which is also the marginal benifit curve

Question 9

What is the diagram for marginal utility?

Answer 9

X = quantity
Y = price
D = MU
From top left to bottom right not touching the axes