Chapter 7 Flashcards
TU stands for what?
Total Utility
What is total utility?
The total amount of satisfaction derived from consuming some form of good or service
What is utility?
A measurement of satisfaction from possesing or consuming a good or service.
What is the difference between utility and total utility?
Utility is the MEASUREMENT of satisfaction from consuming a good or service while Total utility is the TOTAL satisfaction derived from consuming some form of good or service.
What does MU stand for?
Marginal Utility
What is Marginal Utility?
It is the change in total utility divided by the change in quantity.
What is the equation of marginal utility
Mu = (change in Tu)/(change in Quantity)
What is diminishing Marginal utility?
As a consumer consumes more and more of a certain product, during a specific time frame, the less satisfaction the consumer experiences.
Dis-Utility?
Dis-satisfaction
Total utility increases when Mu is what?
When marginal utility is positive
When is Total utility maximized?
When MU is 0
When does dis-satisfaction take place?
When Marginal utility (MU) is negative
To make sense and apply Law of diminishing returns marginal utility there must be what?
a time frame
All consumers are not identical; they all face the law of diminishing marginal utility but what?
but they all face the law of diminishing marginal utility at different rates.
At all you can eat buffets all consumers will stop eating when?
when Marginal Utility = 0 but everyone stops eating at different amounts
Law of Diminishing Marginal Utility explains what about the demand curve?
Why it is downward sloping
Consumers equilibrium is when what?
when the total budget is expanded and the marginal utility per dollar is the same of expenditure on the last unit of each good is the same.
No other allocation of a certain amount of money would yield the consumer more utility per dollar or total utility than what?
consumer equilibrium
What is the consumer equilibrium equation?
(MUx/Px) = (MUy/Py) = (MUz/Pz)
If (MUx/Px) > (MUy/Py) than the consumer should do what? why?
Should purchase more X because the marginal utility per dollar of good X is higher than good Y.
If (MUx/Px) > (MUy/Py) and the consumer keeps purchasing good X the MU will do what?
Th MU will decrease of good X, until the consumer reaches equilibrium (MUx/Px) = (MUy/Py)
Why is the Demand cure downward sloping?
1) Substitution effect
2) Income effect
3) Utility analysis
What is consumer surplus?
The difference between what the consumer is willing to pay per unit and the price that the consumer actively has to pay.
Consumer surplus provides a basis for what
Pricing strategy
