6.1 Marginal Utility and Consumer Choice Flashcards
What is Utility?
utility
The satisfaction that a consumer receives from consuming some good or service.
What is “total Utility?”
total utility
The consumer’s total satisfaction resulting from the consumption of a given product.
What is Marginal Utility?
marginal utility
The additional satisfaction obtained from consuming one additional unit of a product.
The central hypothesis of utility theory, often called the law of diminishing marginal utility, is as follows:
The utility that any consumer derives from successive units of a particular product consumed over some period of time diminishes as total consumption of the product increases (holding constant the consumption of all other products).
What is the unit of measurement for utility?
Utils
What is the difference between total and marginal utility as consumption rises?
Total utility rises, but marginal utility declines, as consumption increases.
What are the typical constraints that consumers face when trying to maximize their utility?
consumers seek to maximize their total utility subject to the constraints they face—in particular, their income and the market prices of various products.
How dose a utility maximizing consumer allocatee expenditures?
A utility-maximizing consumer allocates expenditures so that the marginal utility from the last dollar spent on each product is equal.
What is the condition required for maximizing utility?
How do we derive the consumer’s demand curve for a product?
To derive the consumer’s demand curve for a product, we need to ask what happens when there is a change in the price of that product.
What is the basic prediction of demand theory:
A rise in the price of a product (with all other determinants of demand held constant) leads each utility-maximizing consumer to reduce the quantity demanded of the product.
What is the market demand curve a sum of?
The market demand curve is the horizontal sum of all the individual demand curves.
Differences between Market and individual Demand Curves
