Marginal Utility Flashcards
In economics, the amount of satisfaction or pleasure someone receives from consuming a product is referred to as _____.
Utility
The utility of a specific product or service may vary widely from person to person, therefore it is
Subjective
Marginal utility ______
is the extra satisfaction from the consumption of one more unit of some good or service
According to the law of diminishing marginal utility, what happens to additional satisfaction or utility as a consumer consumes additional units of a given product?
It declines
Suppose the marginal utility of drinking the first cup of coffee is 12, and the total utility after the second cup of coffee is 20. What is the marginal utility of the second cup?
8
Which of the following does total utility refer to?
Amount of satisfaction from a good or service.
At lower quantities consumed, the TU curve slopes up while the MU curve slopes down.
True
______ is the change in utility that results from the consumption of one more unit of a product.
Marginal utility
The law that says, when a product yields smaller and smaller amounts of marginal or extra utility, then the consumer will buy additional units of the product only if its price falls is:
the law of diminishing marginal utility
Total is the total amount of satisfaction or pleasure a person derives from consuming some specific quantity.
Utility
Marginal utility per dollar spent is equal to marginal utility divided by .
Price
What is the shape of the marginal utility curve?
a downward sloping curve that becomes zero when total utility is at a maximum
What is the objective of a rational consumer?
To maximize total utility
Assume that the price of a bag of nuts is more than that of a power drink. What information is needed to determine how a rational consumer will spend her budget
The MU/P for each product and her budget
What generally prevents people from consuming products up until the point where marginal utility equals zero?
Limited income
The marginal purchasing rule implies that we should consume products to the point where the marginal utility per dollar spent is relatively equal for all products.
True
Suppose the marginal utility for the first burger is 120 and its price is $6. In addition, the marginal utility for the first slice of pizza is 250 and its price is $10. What would be the consumer’s first purchase?
Buy the slice of pizza since the marginal utility per dollar spent is higher than that of the burger.
Given the different combinations of products a consumer can obtain within their budget, the ______ can determine the specific combination that will yield the most utility or satisfaction.
optimal purchasing rule
Suppose the marginal utility for the first burger is 180 and its price is $6. In addition, the marginal utility of he first slice of pizza is 250 and its price is $10. What would be the consumer’s first purchase?
Buy the burger since the marginal utility per dollar spent is higher than that of the pizza slice
Which of the following is true for products that have the highest initial marginal utilities?
They will have high spending priorities
Why does a product sometimes cease to be a favourite?
Because its MU declines as more is consumed.
Why do some governments tax investment income are at a higher rate than employment income?
Because the MU of investment income is generally less than that of employment income.
The marginal purchasing rule implies that we should consume products to the point where the marginal utility per dollar spent is relatively equal for all products.
True
A better unit with which to measure marginal utility is money rather than utils.
True
Which of the following is true for products that have high spending priority
They have low income elasticity
True or false: The marginal utility of wine does not diminish with increased consumption.
False
The logic behind taxing investment income at a higher rate is that usually investments are owned by richer people.
False
True or false: Dollar marginal utility is an effective way to overcome the arbitrary nature of the concept of utility.
True
True or false: The marginal utility per dollar spent is measured in dollars whereas dollar marginal utility is measured in utils.
False
Which of the following is true for products that have the highest initial marginal utilities?
They will have high spending priorities
Which of the following is an important assumption for the idea of diminishing marginal utility?
It only works if the product is consumed over a relatively short period.
Deriving a demand curve from marginal utility shifts the focus from the price to the quantity.
True
What determines how much of a product a person will purchase?
The marginal utility of the last unit purchased.
What is the term for the difference between the dollar MU and the price of a good that consumers purchase?
Marginal consumer surplus
Consumer surplus is illustrated by the area the________demand curve and the _______price line.
Below , above
Which of the following describes marginal consumer surplus?
It is the difference between the dollar MU and the price that a consumer pays for a unit purchased.
The formula to calculate consumer surplus from a graph requires you to find the area of a triangle which can be found by 1/2 x base x height.
True
Consumers get a smaller consumer surplus when the good _____.
Price is elastic
True or false: Producers are always interested in capturing consumer surplus for themselves.
True
What can producers do in order to try and capture some of the consumers’ surplus?
Research into how much consumers are willing to pay for their product.
What kind of auction starts with a very high price which is then continuously lowered until someone indicates that he or she is willing to pay that price?
A Dutch auction
How can we calculate total consumer surplus from a graph?
The area of the triangle between the demand curve and the price line.
What is the term used to refer to charging different prices for a product, with the same costs of production, to different buyers?
Price discrimination
Consumers enjoy a bigger consumer surplus when the good _____.
is price inelastic
The effectiveness of price discrimination depends on (among other things) different groups of buyers having different ____________.
price elasticities
What can producers do in order to try and capture some of the consumers’ surplus?
Auction off their goods.
Which of the following conditions are necessary for price discrimination to be practised?
The seller is able to identify groups of people with different elasticities and separate them from other groups.
The seller has control over the price.
The seller is able to prevent those who buy the good at the cheaper price from reselling the product.
Price discrimination is often practiced on _____ ______ as opposed to physical goods since they are hard to resell.
Blank 1: personal
Blank 2: services
Consumers enjoy a bigger consumer surplus when the good _____.
is price inelastic
Offering discounted drink prices during “happy hour” is using _____ as a basis for price discrimination
Time
Which of the following are the basis for price discrimination?
Age
Volume of purchases
Time of use
Optimal utility will be where an individual’s budget line and utility curve intersect.
True
An increase in one’s income will cause the budget line to:
Shift right
A change in the price of one good will cause the budget line to pivot.
True
Optimal utility will be where an individual’s budget line and utility curve intersect.
True
