Marginal Utility And Consumer Surplus

Question 1

Define marginal utility

Answer 1

The additional utility you get from consuming another unit of output

Question 2

Define consumer surplus

Answer 2

Consumer surplus is the difference in price between what the consumer was willing to pay and what they actually paid

Question 3

Define producer surplus

Answer 3

Producer surplus is the difference in price between what a firm was willing to sell the good for and the price actually received

Question 4

At what point is utility maximised (1 Util=£1)

Answer 4

Consumer surplus is maximised when price=marginal utility

Question 5

What are limitations of the one commodity version

Answer 5

Marginal utility is affected by consumption of other goods

Marginal utility of money isn’t constant (£1=1 util however this may not be the same for £2)