MICRO - LS14 - Diminishing Marginal Utility & Misc

Question 1

Gov spending eq.

Answer 1

Subsidy x quantity sold

Question 2

Tax revenue eq.

Answer 2

Tax rate x quantity sold

Question 3

Income effect

Answer 3

Assuming a fixed level of income, the income effet means that as price fall the amount that consumers can afford increases therefore demand does too

Question 4

Marginal utility

Answer 4

The utility/satisfaction obtained from consuming one extra unit of a good/service

Question 5

Diminishing marginal utility

Answer 5

As successive units of a good are consumed the marginal utility gained from each extra unit will fall

Question 6

How can marginal utility explain the demand curve

Answer 6

As quantity of goods consumed increases then less satisfaction is derived from the goods so marginal utility falls so then consumers may only be willing to pay a lower price - causes demand curve to slope downwards