Consumer Sector Flashcards
Define the law of diminishing marginal utility Descrive how utility is maximized
Prices are important in determining consumer behavior
New products have to be price correctly.
Preferences do not equal choices
consumer choice
preferences determine the benefits or satisfaction a person receives consuming a good or service
consumer choice
amount of satisfaction of benefit a person receives from the consumption of a good or service
utility
The more pleasure we get from a product, the higher the price we’re paying for it
Utility theory
Total benefit or satisfaction received from the consumption of series of products
- -depends on level of consumption
- -subjective
Total Utility
- -extra satisfaction derived from 1 additional unit of a specific product
- -change in total utility that results from 1 unit increase in the quantity of a good consumed
marginal utility
Assumes people choose the consumption possibility that maximizes their total utility
-People’s wants exceed the resources available to satisfy those wants
Marginal Utility Theory
successive units of a product yield smaller and smaller amounts of marginal utility so the consumer will buy more only if P falls
Law of Diminishing Marginal Utility
the more of a specific product consumers obtain, the less they will desire more units of that product
law of diminishing Marginal Utility
amount by which marginal utility declines as more units of a product are consumed helps determine that product’s price elasticity of D
Law of diminishing Marginal Utility
As long as marginal utility >0, ____
total utility increases
When marginal utility becomes negative, ___
total utility maxes out and then decreases
if marginal utility declines in big steps, a small change in quantity brings a big change in marginal utility per $ spent, D is Elastic
Law of Diminishing Marginal Utility
If marginal utility declines slowly and a large change in Q brings a small change in marginal utility per $ spent, D is inelastic
Law of Diminishing Marginal Utility
The more marginal utility a product delivers, the more we are willing to pay for it, and vice versa
Price and Quantity
As marginal utility diminishes, we buy additional quantities only if the price decreases
Price and Quantity
The law of demand states that the quantity of a good demanded in a given time period increases as its price falls, ceteris paribus
Price and Quantity
Goal of consumer is maximize total utility
marginal utility per $ spent is = for all goods
When consumer has allocated all available income in a way that maximized total utility
consumer equilibrium
no incentive exits to alter expenditure pattern unless tastes, income or prices change
consumer equilibrium
Utility maximized when budget is completely spent and marginal utility of a good divided by its price is identical for the last unit of each good
consumer equilibrium
In equilibrium, higher priced goods must yield more marginal utility to compensate
consumer equilibrium
The spending of money for and the acquiring of luxury goods and service to publicly display economic power, either the buyer’s income or the buyer’s accumulated wealth
Thorstein Veblen
