Chapter 5 Flashcards
Graphically, as a consumer buys more of a good, the marginal utility line will
continuously decline if diminishing returns are present.
Utility refers to the
satisfaction obtained from a good or service.
Marginal utility is
the change in total utility obtained by consuming one additional unit of a good or service.
Total utility is
the sum of the marginal utilities from the consumption of a good.
if a product has a high marginal utility, then
a consumer is willing to pay a high price for it
The marginal utility for a good is computed as
the change in total utility divided by the change in quantity.
The additional pleasure or satisfaction from a good will decline as more of it is consumed in a given period. This is the definition of the
law of diminishing marginal utility.
Jose goes to an all-you-can-eat buffet at a Chinese restaurant and consumes three plates of food. He does not go back for a fourth plate of food because
the marginal utility of the fourth plate would no longer be positive.
Total utility is maximized when the
marginal utility is zero.
Consumer surplus measures
the difference between the maximum price a consumer is willing to pay and the price actually paid.
Rosa is willing to pay $200 for the iPhone, but the actual price is $400. This means
Rosa will not buy an iPhone.
When sellers price discriminate,
they are attempting to charge a price that is the maximum price each individual is willing to pay.
Which of these scenarios is an example of price discrimination?
Senior citizens pay one price at the movie theater while other adults pay more.
Price discrimination works best when
buyers do not have perfect information about the price.
Airline companies engage in price discrimination by
charging higher prices to customers who must travel on short notice.
Price discrimination
is a way for sellers to elicit the maximum willingness to pay from buyers.
Assume Amanda always maximizes her total utility given her budget constraint. Every morning for breakfast she has two eggs and three sausages. If the marginal utility of the last egg is 10 utils and the price of eggs is $1 each, what can we say about the marginal utility of the last sausage if the price of each sausage is $2?
It must be equal to 20 utils.
Maximum utility is achieved when
marginal utility is zero.
A consumer maximizes total utility from a given amount of income when the
marginal utility per dollar obtained from the last unit of each good is the same.
