Models of Consumer Choice

Question 1

Marginal Utility (MU)

Answer 1

The additional utility gained from consuming one more unit of a good

Question 2

Total Utility

Answer 2

Found by adding the marginal utility values from each of the units consumed

Question 3

Consumer Surplus

Answer 3

The value received from the purchase of a good in excess of what it is paid for that good

Question 4

Producer Surplus

Answer 4

The difference between the price a seller receives for a good and the minimum price for which they would be willing to supply for that good

Question 5

Elasticity

Answer 5

Indicates how responsive something is to various changes

Question 6

Price Elasticity of Demand

Answer 6

Indicates how responsive the quantity demanded is to a change in price

Question 7

Determinants of Elasticity

Answer 7

• Number of Close Substitutes
• Proportion of Income Spent
• Time
• Importance of a Good

Question 8

Elastic

Answer 8

A 50% increase in price results in a more than 50% increase in quantity

Question 9

Luxuries

Answer 9

Goods with an elastic demand

Question 10

Unit Elastic

Answer 10

Percent change in price is equal to percent change in quantity

Question 11

Inelastic

Answer 11

Percent change in quantity is less than percent change in price

Question 12

Neccessity

Answer 12

Goods with an inelastic demand

Question 13

Elasticity of Supply

Answer 13

Measures the responsiveness of the quantity supplied to price changes

Question 14

Income Elasticity of Demand

Answer 14

Measures the responsiveness of the quantity demanded to changes in income ( – = Inferior, + = Normal)

Question 15

Cross-Price Elasticity of Demand

Answer 15

Measures the responsiveness of the quantity demanded of one good to the price of another good ( – = Complement, + = Substitute)

Question 16

Deadweight Loss/ Excess Burden

Answer 16

Represents the loss to former consumer and producer surplus in excess of the total revenue of the tax