Chapter 5 Key Terms

Question 1

Total utility

Answer 1

the __________ of a quantity of a good to a consumer (measured in money terms) is the maximum amount of money the consumer is willing to give up in exchange for the good

Question 2

Marginal utility

Answer 2

the _______________ of a commodity to a consumer (measured in money terms) is the maximum amount of money the consumer is wiling to pay for one more unit of that commodity

Question 3

“Law” of diminishing marginal utility

Answer 3

rule that additional units of a commodity are worth less and less to a consumer in money terms; as consumption increases, it declines vis-a-vis each additional unit

Question 4

Marginal analysis

Answer 4

a method for calculating optimal choices – the choices that best promote the decision maker’s objective; works by testing whether, and by how much, a small change in a decision will move things toward or away from the goal

Question 5

Consumer’s surplus

Answer 5

the difference between the value to the consumer of the quantity of Commodity X purchased and the amount that the market requires the consumer to pay for that quantity of X

Question 6

Inferior good

Answer 6

a commodity whose quantity demanded falls when the purchaser’s real income rises, all other things remaining equal

Question 7

Market demand curve

Answer 7

a graphical depiction of how the total quantity of some product demanded by all consumers in the market during a specified period of time changes as the price of that product changes, holding all other things constant

Question 8

“Law” of demand

Answer 8

rule that a lower price generally increases the amount of a commodity that people in a market are willing to buy and also tends to increase the number of buyers; for most goods, market demand curves have negative slopes