Ch 7 - The Analysis of Consumer Choice Flashcards
If we could measure Total Utility it would be…
The number of units of utility that a consumer gains from consuming a given quantity of a good, service, or activity during a particular time period. The higher a consumer’s total utility, the greater that consumer’s level of satisfaction
Th amount by which the total utility rises with consumption of an additional unit of a good, service, or activity, all other things unchanged, is…?
Marginal Utility.
The law of diminishing marginal utility states that
The tendency of marginal utility to decline beyond some level of consumption during a period of time
Economists assume that consumers behave in a manner consistent with…. of utility.
The maximization of utility
What is a budget restraint in the economics context?
A restriction that total spending cannot exceed the budget available
What is the marginal utility rule
When consumers are expected to spend the budget they have, utility maximization is a matter of arranging that spending to achieve the highest total utility possible.
What is a utility-maximizing condition?
Utility is maximized when total outlays equal the budget available and when the ratios of marginal utilities to prices are equal for all goods and services.
What is the problem of divisibility?
If we are to apply the marginal decision rule to utility maximization, foods must be divisible; that is, it must be possible to buy them in any amount.
What is an income-compensated price change
An imaginary exercise in which we assume that when the price of a good or service changes, the consumer’s income is adjusted so that he or she has just enough to purchase the original combination of goods and services at the new set of prices
The change in a consumer’s consumption of a good in response to an income-compensated price change is called….
The substitution effect
The change in consumption of a good resulting from the implicit change in income because of a price change is called…
The income effect
What is the formula for the utility maximization condition?
MU(subX)/P(subX) = MU(subY)/P(subY)
