Chapter 4

Question 1

The Law of Demand

Answer 1

People do less of what they want to do as the cost of doing it rises.

The benefit of an activity equals the highest price consumers would be willing to pay to
pursue the activity (i.e. the reservation price).

As the cost of an activity rises and exceeds the reservation price, less of the activity will be pursued.

Question 2

Marginal utility

Answer 2

The amount by which total utility changes when consumption changes by one unit

Question 3

Diminishing marginal return

Answer 3

There is a tendency for marginal utility to decline as consumption increases, beyond some point consumption is described as diminishing marginal return