CH6: The Theory of Demand: The Utility Approach

Question 1

Perfectly Elastic Supply

Answer 1

es = ∞. Any quantity supplied at a given price.

Question 2

What is utility in economics?

Answer 2

The total satisfaction received from consuming a good or service.

Question 3

What is marginal utility?

Answer 3

The additional utility gained from consuming one more unit of a product.

Question 4

What is total utility?

Answer 4

The total satisfaction from all units of a product consumed.

Question 5

What does the law of diminishing marginal utility state?

Answer 5

Marginal utility decreases as more units of a good are consumed.

Question 6

What is cardinal utility?

Answer 6

A measurable form of utility using ‘utils’.

Question 7

What is ordinal utility?

Answer 7

Ranking preferences without assigning numerical values.

Question 8

What is consumer equilibrium in the utility approach?

Answer 8

When a consumer maximizes total utility and MU/Price is equal across all goods.

Question 9

What must be true for consumer equilibrium?

Answer 9

All income is spent and weighted marginal utilities are equal.

Question 10

What is the formula for consumer equilibrium with three goods?

Answer 10

MU_B/P_B = MU_M/P_M = MU_R/P_R