Chapter 7 Flashcards
Define utility.
Utility is the degree of satisfaction that a household or consumer derives or expects to derive from the consumption of a good or service.
Does a particular product have a unique measurable utility for all consumers?
No, a particular product does not have a unique measurable utility which applies to all consumers.
Can a product provide different amounts of satisfaction to a particular consumer at different times and places?
Yes, a product will provide different amounts of satisfaction to a particular consumer at different times and different places.
Distinguish between ordinal and cardinal utility.
Cardinal Utility involves the idea that utility can be measured; Ordinal Utility involves the ranking of different bundles of consumer goods or services in order of preference.
Define Marginal Utility (MU).
Marginal Utility (MU) is the extra/additional utility that a consumer derives from the consumption of one additional unit of a good.
Define Total Utility (TU).
Total Utility (TU) is the sum of all the marginal utilities.
What is the total utility of one apple if it is 50 utils?
The total utility of one apple is 50 utils.
What is the total utility of two apples if the total utility of one apple is 50 utils and the additional utility from the second apple is 35 utils?
The total utility of two apples is 85 utils.
What does the Law of Diminishing Marginal Utility state?
The Law of Diminishing Marginal Utility states that the marginal utility of a good or service eventually declines as more of it is consumed during any given period.
What is another name for the Law of Diminishing Marginal Utility?
Gossen’s first law.
What is the purpose of a utility table?
The utility table is used to calculate the values of MU, TU, and MU/P.
How do you calculate consumer equilibrium in the utility approach?
Consumer equilibrium is calculated by equating the marginal utility per dollar spent across different goods.
What does deriving the individual demand curve for a product involve?
It involves plotting the quantity demanded at different price levels based on utility maximization.
