Marginal Utility and Consumer Choice

Question 1

Marginal Utility - Definition & Equation

Answer 1

Marginal Utility - the extra satisfaction from consuming one more

MU = Change in TU / Change in Q

Question 2

Law of Diminishing Marginal Utility

Answer 2

Marginal utility decreases as quantity consumed increases, and total utility rises at a decreasing rate as consumption increases

When TU is Rising –> MU is Positive
When TU is Maximum –> MU is Zero
When TU is Falling –> MU is Negative

Question 3

Marginal-utility-to-price ratio: If the price of a good falls

Answer 3

Its marginal utility to price ratio rises…

MU / Price

Question 4

Consumer Surplus

Answer 4

is the difference between what you pay for a good and what you would have been willing to pay

Question 5

The value of a good to a consumer depends on

Answer 5

the marginal utility of the last unit consumed

Question 6

You would be inclined to bid on a good at an auction if

Answer 6

its MU/P was higher than those for other goods you consume

One always wants to maximize their marginal utility to price ratio. So one would only bid if the MU/P was higher than other goods you consumed.