Chapter 8: Utility and Demand

Question 1

Behavioural economics

Answer 1

study of the ways in which limits on the human brain’s ability to compute and implement rational decisions influences economic behaviour—both the decisions that people make and the consequences of those decisions for the way markets work.

Question 2

Budget line

Answer 2

limit to a household’s consumption choices. It marks the boundary between those combinations of goods and services that a household can afford to buy and those that it cannot afford.

Question 3

Consumer equilibrium

Answer 3

situation in which a consumer has allocated all his or her available income in the way that, given the prices of goods and services, maximizes his or her total utility.

Question 4

Diminishing marginal utility

Answer 4

tendency for marginal utility to decrease as the quantity consumed of a good increases.

Question 5

Marginal utility

Answer 5

change in total utility resulting from a one-unit increase in the quantity of a good consumed.

Question 6

Marginal utility per dollar

Answer 6

marginal utility from a good that results from spending one more dollar on it. It is calculated as the marginal utility from the good divided by its price.

Question 7

Neuroeconomics

Answer 7

study of the activity of the human brain when a person makes an economic decision.

Question 8

Preferences

Answer 8

description of a person’s likes and dislikes and the intensity of those feelings.

Question 9

Total utility

Answer 9

total benefit that a person gets from the consumption of all the different goods and services.

Question 10

Utility

Answer 10

benefit or satisfaction that a person gets from the consumption of goods and services.