Unit 6: Consumer Choice and Demand

Question 1

Total Utility

Answer 1

The total satisfaction you derive from consumption; this could refer to either to your total utility of consuming a particular good or your total utility from all consumption

Question 2

Law of Diminishing Marginal Utility

Answer 2

The more of a good a person consumes per period, the smaller the increase in total utility from consuming one more unit, o.t.c.

Question 3

Consumer Equilibrium

Answer 3

The condition in which an individual consumer’s budget is exhausted and the last dollar spent on each good yields the same marginal utility; therefore, utility is maximized

Question 4

Marginal Valuation

Answer 4

The dollar value of marginal utility derived from consuming each additional unit from a good

Question 5

Consumer Surplus

Answer 5

The difference between the most a consumer would pay for a given quantity of a good and what the consumer actually pays

Question 6

Indifference Curve

Answer 6

Shows all combinations of goods that provide the consumer with the same level of satisfaction or utility

Question 7

Marginal Rate of Substitution

Answer 7

Indicates the number of “x” that you are willing to give up to get one more unit of “y”- neither gaining or losing utility in the process

Question 8

Law of Diminishing Marginal Rate of Substitution

Answer 8

As your consumption of “x” increases, the number of “y” you are willing to give up to get one more until of “x” decreases

Question 9

Indifference Map

Answer 9

A graphical representation of a consumer’s taste

Question 10

Budget Line

Answer 10

Depicts all possible combinations of “x” and “y,” given their prices and your budget