3A

Question 1

utility

Answer 1

satisfaction an individual get from consuming a good or taking a certain action. Measured as utils per unit of time.

Question 2

marginal utility

Answer 2

Decreasing Marginal Utility implies that the utility from consuming an extra unit of a given good decreases with the number of units that have been previously consumed

Question 3

quantity demanded

Answer 3

Quantity Demanded represents the quantity of a given good or service that maximizes the utility experienced by the individual consuming it.

Question 4

Substitution Effect

Answer 4

The Income Effect captures the changes in the quantity demanded of a given good following the reduction in the consumer’s purchasing power.

Question 5

Law of Demand

Answer 5

Demand curves have the tendency of being downward sloping

Question 6

Demand curve

Answer 6

Demand Curve represents the relationship between the price of a good or service and the quantity demanded of that good or service

Question 7

Consumer Reservation Price (or Willingness to Pay)

Answer 7

the maximum amount of money an individual is willing to pay for a certain good or service

Question 8

substitutes

Answer 8

Two goods are Substitutes when an increase in the price of one causes an increase in the quantity demanded of the other.

Question 9

Complements

Answer 9

Two goods are Complements when a decrease in the price of one causes an increase in the quantity demanded of the other.

Question 10

Price Elasticity of Demand

Answer 10

The Price Elasticity of Demand captures the percentage change in quantity demanded resulting from a very small percentage change in price.

Question 11

factors which make demand more/ less elastic

Answer 11

1. Availability of substitutes: larger the number of substitutes, the more elastic demand tends to be
2. Definition of a good: The broader the definition of a good (or service), the lower the elasticity.
3. Income share: The larger the share of income required to purchase a good (or service), the higher the elasticity.
4. Time horizon: The longer the time horizon, the higher the elasticity tends to be.