LS 14- Diminishing Marginal Utility & Misc

Question 1

What is the income effect?

Answer 1

Assuming a fixed income, it means that as price falls the amount that consumers can afford increases so demand increases.

Question 2

What is marginal utility?

Answer 2

This is the utility of consuming one extra unit of a good.

Question 3

What is diminishing marginal utility?

Answer 3

As more units of a good are consumed, the utility gained from each extra unit will decrease.

Question 4

How do you calculate the cost of a subsidy to the government?

Answer 4

Get the equilibrium of the subsidy and follow it up to the initial supply curve, then follow it across to form a box. This is the cost of the subsidy.

Link: https://www.tutor2u.net/economics/reference/government-intervention-producer-subsidies