Topic 4

Question 1

Law of Diminishing Marginal Utility

Answer 1

As an increase in the consumption of a good/ service is being consume the marginal utility obtained from any additional unit of a good/ service decreased.

Question 2

Utility

Answer 2

A satisfaction that one gets from consuming a good/ service.

Question 3

Util

Answer 3

One unit of satisfaction

Question 4

Total utility

Answer 4

The total amount of satisfaction

Question 5

Marginal utility
And it’s equation

Answer 5

The extra satisfaction from an additional unit of good.
MU= 🔺️TU/ 🔺️Q

Question 6

Rational behavior

Answer 6

Preferences

Question 7

Budget constraints

Answer 7

Prices

Question 8

Utility Maximizing Rule
Same as
Consumer equilibrium

Answer 8

Consumers allocate their income so that every dollar spent on a product yields the same amount of extra (marginal) utility

Question 9

Utility Maximizing Rule equation

Answer 9

(MU of product A) / price of product A

=

(MU of product B) / price of product B

Question 10

Determinants of an individuals demands

Answer 10

1. Preferences and taste
2. Income
3. Price of other goods

Question 11

Income effect

Answer 11

The impact a price change has on a consumers income

Question 12

Substitution effect

Answer 12

The impact a price change has on a products’ relative expensiveness.