Chapter 25

Question 1

What is a util?

Answer 1

1 unit of satisfaction

Question 2

What is marginal utility?

Answer 2

How much satisfaction do you receive from consuming 1 additional unit.

Question 3

Diminishing marginal utility?

Answer 3

How much satisfaction you lose from consuming an additional unit.

Question 4

How long will we continue to consume something?

Answer 4

• as long as the marginal utility is positive, but when given a choice we will always go with what brings us the highest marginal utility.

Question 5

When can total utility be maximized?

Answer 5

If the marginal utility per unit of currency is the same in apples and oranges.

Question 6

What is the equation for satisfaction per dollar.

Answer 6

Marginal utility/ Price

Question 7

What is the optimal consumption rule?

Answer 7

To maximize the utility a consumer should allocate spending so that the marginal utility per dollar is equal for all purchases.

Question 8

What happens to the marginal utility of apples if the price increases, and oranges?

Answer 8

Oranges would be preferred because the apple dominator would increase.

Question 9

If IE > SE: ↓wage
If IE < SE: ↓wage
(Effect on leisure and work)

Answer 9

1. ) ↓leisure, ↑ work

2. ) ↑leisure, ↓ work