Mod 51

Question 1

Utility

Answer 1

Measure of personal satisfaction

Question 2

Util

Answer 2

Unit of utility

Question 3

Utility Function

Answer 3

Shows relationship between customer’s utility and the combination of goods/services (consumption bundle) they consume

Question 4

Marginal Utility

Answer 4

Change in total utility generated by consuming one additional unit of the good/service

Question 5

Marginal Utility Curve

Answer 5

Shows marginal utility depends on quantity of good/service consumed

Question 6

Principle of Diminishing Marginal Utility

Answer 6

Successive units of a good/service add less total utility than do previous units; doesn’t apply in all scenarios

Question 7

Budget Constraint

Answer 7

Limits cost of a consumer’s consumption bundle to no more than the consumer’s income

Question 8

Consumption Possibilities

Answer 8

Set of all affordable consumption bundles given a consumer’s income and prevailing prices

Question 9

Budget Line (BL)

Answer 9

• Shows consumption possibilities available to a consumer who spends all of their income
• Boundary between set of affordable consumption bundles and unaffordable ones

Question 10

Optimal Consumption Bundle

Answer 10

• Consumption bundle that maximizes total utility given budget constraints
• Look at Utility Function to find option that gives maximum total utils and verify with Budget Line

Question 11

Marginal Utility Per Dollar

Answer 11

• Additional utility from spending one more dollar on that good/service
• Derive by dividing marginal utility of the good by its price in dollars

Question 12

Optimal Consumption Rule

Answer 12

At the optimal consumption bundle, marginal utility per dollar spent on each good is the same