Chapter 7

Question 1

What is ‘Margin’

Answer 1

A margin is a change in variable caused by an increase of another variable

Question 2

Total Utility

Answer 2

Overall benefit (or loss) of consuming a good

Question 3

Marginal Utility

Answer 3

Benefit (loss) from on consuming 1 extra unit of a good

Question 4

Law of diminishing utility

Answer 4

Marginal utility diminishes for each additional unit consumed. e.g. each additional chocolate bar consumed will give less satisfaction than the previous one

Question 5

What are ‘utils’

Answer 5

A measurement of satisfaction

Question 6

What is Price signal

Answer 6

Where the price of a good carries information to producers or consumers that guide the market towards equilibrium and assists in resource allocation

Question 7

Diminishing utility and Demand curve

Answer 7

As marginal utility decreases, the price a consumer would be willing to pay decreases, which explains why the demand curve is sloping downwards

Question 8

What is a rational consumer

Answer 8

A consumer that uses all the information, makes independent choices (not pressured), they try to maximise satisfaction. Stable preferences

Question 9

What is allocative efficiency

Answer 9

This is achieved when society is producing the appropriate bundle of goods and services relative to consumer preferences - this occurs when price equals marginal cost

Question 10

What is productive efficiency

Answer 10

Any point on the PPC curve, when a firm is operating with minimum cost

Question 11

What is economic efficency

Answer 11

a situation in which productive and allocative efficiency has been met