Consumer Behaviour

Question 1

Utility

Answer 1

measures individual preferences -> greater preference = higher level of utility

Question 2

Marginal utility

Answer 2

additional utility gained from consuming an additional good -> decreases as more of a good is consumed

Question 3

Marginal benefit

Answer 3

willingness to pay to consume one more of a good

Consumers buy quantity of good such that marginal benefit is equal to price of the good

Question 4

Indifference curve

Answer 4

illustrates all possible combinations of two goods that provide an individual with equal levels of utility

Question 5

Budget constraint

Answer 5

Shows what an individual can afford and is determined by the individual’s income and prices of goods