6.1 Marginal Utility and Consumer Choice

Question 1

what is utility?

Answer 1

Utility
is the satisfaction that a consumer receives
from consuming some good or service.

Question 2

what is total utility?

Answer 2

Total utility
is the consumer’s total satisfaction
resulting from the consumption of a given product.

Question 3

what is marginal utility?

Answer 3

Marginal utility
is the additional satisfaction obtained
from consuming one additional unit of a product.

Question 4

explain Diminishing Marginal Utility

Answer 4

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.

Question 5

define The Consumer’s Maximizing Decision

Answer 5

A utility-maximizing consumer allocates expenditures
so that the marginal utility obtained from the last dollar
spent on each product is equal. Consumers seek to maximize their total utility subject
to the constraints they face – their income and market
price

Question 6

formula Maximizing Utility

Answer 6

MUx/Px = MUy/Py

Question 7

What happens when there is a change in the product’s price?

Answer 7

1- Px goes up
2- Consumer buys less x
3- so MUx goes up
4- By consuming less x, there’s extra income to buy more y
5- As a result, MUy goes down (Py didn’t change)
6- MUx/MUy goes up, restoring the optimality of consumption decisions

Question 8

what impact of demand has a rise in price?

Answer 8

A rise in the price of a product leads each utility-maximizing consumer to reduce the quantity demanded of the product.

Question 9

Consider Alison, whose utility from the last dollar spent on juice is more than from the last dollar spent on burritos. She increases her total utility by spending a dollar more on juice and a dollar less on burritos.

Answer 9

She maximizes total utility when the marginal utility per dollar spent on juice equals the marginal utility per dollar spent on burritos. MUb/Pb = MUj/Pj