8: Utility & Demand

Question 1

What is a budget line? What fluctuates this line?

Answer 1

Line that shows the limits of her consumption possibilities, fluctuates by the consumer’s budget and prices of goods/services.

Question 2

What is utility? Total utility?

Answer 2

Utility: Benefit of satisfaction from consuming a good/service
Total utility: Total benefit a person gets from consumption of goods. Generally, more consumption = more total utility

Question 3

What is marginal utility?

Answer 3

Increase in total utility that results from consuming one more unit of the good
More you consume = less marginal utility

Question 4

What is consumer equilibrium?

Answer 4

Situation where the consumer allocates all of her income that maximizes total utility

Question 5

What is marginal utility per dollar?

Answer 5

Marginal utility from a good that results from spending one more dollar on it.
Marginal utility/Price

Question 6

When is total utility maximized?

Answer 6

All available income is spent
Marginal utility per dollar for all goods is equal
MU1/P1 = MU2/P2