Chapter 2: Utility Maximization

Question 1

-As consumption of a good or service increases, the marginal utility obtained from each additional unit of a good or service decreases
-Downward sloping demand curve

Answer 1

Law of Diminishing Marginal Utility

Question 2

-Satisfaction one gets from consuming a good or service

Answer 2

Utility

Question 3

-One unit of satisfaction or pleasure is called a ______

Answer 3

Util

Question 4

-Total amount of satisfaction

Answer 4

Total Utility

Question 5

-Extra satisfaction from an additional unit of the good

Answer 5

Marginal Utility

Question 6

-Consumer allocates his or her income so that the last dollar spent on each product yields the same amount of extra (marginal) utility

Answer 6

Utility Maximizing Rule

Question 7

MU of product A/Price of A=MU of Product B/Price of B

Answer 7

Utility Maximizing Rule algebraically

Question 8

-The impact a price change has on a consumer’s real income

Answer 8

Income effect

Question 9

-The impact a price change has on a product’s relative expensiveness

Answer 9

Substitution Effect