WEEK 4

Question 2

What does Marginal Utility Theory focus on?

Answer 2

The relationship between utility and consumer satisfaction

It examines how consumers derive satisfaction from goods and services.

Question 3

Define Total Utility (TU).

Answer 3

The total satisfaction received from consuming a good or service

Measured in utils.

Question 4

Define Marginal Utility (MU).

Answer 4

The additional satisfaction gained from consuming one more unit of a good or service

Also measured in utils.

Question 5

What is meant by diminishing marginal utility?

Answer 5

The principle that as a person consumes more units of a good, the additional satisfaction from each unit decreases.

Question 6

What does the term ‘consumer surplus’ refer to?

Answer 6

The difference between what consumers are willing to pay and what they actually pay.

Question 7

What is the formula for marginal consumer surplus (MCS)?

Answer 7

MCS = MU - P

Question 8

What is the formula for total consumer surplus (TCS)?

Answer 8

TCS = TU - TE

Question 9

What characterizes rational consumer behavior?

Answer 9

Consuming the amount of a good that maximizes total utility or consumer surplus.

Question 10

Fill in the blank: The principle of _______ states that as more units are consumed, the additional satisfaction decreases.

Answer 10

diminishing marginal utility

Question 11

What is the ‘efficiency frontier’?

Answer 11

A graphical representation showing the different combinations of characteristics that can be purchased.

Question 12

What impact does a budget constraint have on consumer choice?

Answer 12

It affects how much of each characteristic can be purchased.

Question 13

True or False: The efficiency frontier can shift outwards if a product’s price decreases.

Answer 13

True

Question 14

What do indifference curves represent?

Answer 14

Combinations of different goods that provide the same level of satisfaction to the consumer.

Question 15

What happens to indifference curves if consumer tastes change?

Answer 15

There would change in the shape of the indifference curves.

Question 16

What is the significance of the tangency point in the characteristics approach?

Answer 16

It indicates the optimum consumption point for a consumer.

Question 17

List some limitations of the characteristics approach.

Answer 17

• Difficulty in measuring characteristics
• Many products have numerous characteristics
• Only two characteristics can be plotted
• Hard to identify indifference curves
• Consumer tastes change

Question 18

What does the characteristics approach help firms understand?

Answer 18

The effects of changes in consumer perceptions through product specifications and advertising.

Question 19

Fill in the blank: Rational consumers maximize their _______ from goods.

Answer 19

consumer surplus

Question 20

What is the relationship between price (P) and marginal utility (MU) in maximizing consumer surplus?

Answer 20

P = MU

Question 21

What does the marginal utility curve represent?

Answer 21

The relationship between the quantity consumed of a good and the marginal utility derived from it.

Question 22

True or False: A change in the budget will not affect consumer choice.

Answer 22

False

Question 23

TU AND MU IS ?

Answer 23

Total utility and marginal utility (level of happiness)

Question 24

Demand curve

Answer 24

at this level of price what is the level of quantity you will buy

Question 25

What is a rational decision?

Answer 25

comparison between the cost and the benefit of the alternatives

Question 26

Consumer surplus?

Answer 26

Difference between how much someone is willing to pay and the actual price

Question 27

Total consumer surplus =

Answer 27

price x quantity

Question 28

rational consumer behaviour is where a person consumer the amount of a good that?

Answer 28

maximizes the consumer surplus from the good = because it looks at both the cost and the benefit

Question 29

Characteristics approach?

Answer 29

1) all products possess various characteristics, and diff brands have different proportions 2) they are measurable objectivity, the characteristic goes along the price, consumers incomes and determines the consumers choice

Question 30

A budget constraint

Answer 30

affects how much of each characterizes can be purchased

Question 31

Efficiency frontier

Answer 31

shows the different combinations of characterists that can be purchased

Question 32

A change in tastes between characterizes would be illustrated by a?

Answer 32

chane in the shape of the indifference curve = preference change the curve

Question 33

Limitations of characteristics approach?

Answer 33

1) they are 2 dimensional so they can't cover more than 2 2) we are not able to measure different characteristics like clothes and food 3 the consumers taste changes - need to update them at all time 4) problems with identifying indifference curves - for 1 individual but more difficult for whole markets but can divide the markets into segments