The Consumer And Utility

Question 1

What are the assumptions made about consumer behaviour?

Answer 1

Consumers have limited income, seek to get maxium utlity from that income, they act rationally and are subject to the law of diminishing marginal utility

Question 2

What are the characteristics of an economic good

Answer 2

Gives utility, commands a price and is transferable

Question 3

What is utility?

Answer 3

In economics utility is used to describe the pleasure/satisfaction/benefit which a person receives from consuming a good or service. Utility is measured in utils

Question 4

What is total utility?

Answer 4

Is the total satisfaction a consumer gets from consuming several units of a good

Question 5

What is marginal utility?

Answer 5

Is the extra satisfaction a consumer gets from consuming one extra unit of a good

Question 6

What does the law of diminishing marginal utility state?

Answer 6

States that as more units of a good are consumed a point will be reached where marginal utility eventually begins to decline

Question 7

What are the assumptions underlying the law of dismissing marginal utility?

Answer 7

Addictive goods and medicines, time lapse, applies after a certain quantity, the nature of the unit doesn’t change and other factors affecting utility do not change

Question 8

What does the law of equi-marginal returns state?

Answer 8

States that to obtain maximum utility a rational consumer will spend their limited income so that the ratio of marginal utility to price will be the same for all goods consumed