Utility

Question 1

Network Externality

Answer 1

Becomes much easier to use the same program when enough people are using it; Not necessarily the best way

Question 2

Implicit Cost

Answer 2

Driving around to find the cheapest gas actually costs you more (opportunity cost)

Question 3

Sunk Cost

Answer 3

Expenditure no longer matters; Once spent, it disappears

Question 4

Winner’s Curse

Answer 4

Winning bid for an auction is actually a loss;

Question 5

Utility Maximization

Answer 5

Happiness; Can’t exactly be measured

Question 6

Marginal Utility

Answer 6

Benefit gained from consuming one additional unit of a good or service

Question 7

Water v. Diamonds Paradox

Answer 7

Utility (w) > Utility (d) because water is a necessity; Yet, MU (w) < MU (d) because diamonds make us happy

Question 8

Diminishing Marginal Returns

Answer 8

Eventually the more you have, less a little more gives to you (levels off)

Question 9

Equimarginal Principle

Answer 9

Liking something more doesn’t mean we buy it; Look at our bang for buck; Happiest when MU/$ for all goods are equal