Eco

Question 1

The Law of Diminishing Marginal Utility (MU)

Answer 1

The law of diminishing marginal utility states that as an additional unit of a good is consumed, the extra satisfaction (MU) gained decreases

Question 2

The Optimal Purchase Rule

Answer 2

The optimal purchase rule states that consumers will continue to purchase a good until the price is equal to or less than the marginal utility (P < MU).

Question 3

The Law of Equi-Marginal Utility

Answer 3

The law of Equi-Marginal utility states that a consumer will maximise their total satisfaction (Total Utility) by spending their money on goods that give them the highest marginal utility per dollar. This means that a consumer will chose the option were MUa/Pa = MUb/Pb

Question 4

P < MU

Answer 4

Buy

Question 5

P = MU

Answer 5

Buy

Question 6

P > MU

Answer 6

Don’t Buy

Question 7

A consumer will maximise their utility if?

Answer 7

1. They spend all their income
2. The marginal utility per dollar must be equal.