Problem set 1 – Flashcards
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What is the definition of Marginal Utility?
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The change in utility from consuming an additional unit of a good or service.
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The law of diminishing marginal utility suggests that
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Consumers experience diminishing additional satisfaction as they consume more of a good.
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Marginal utility is more useful than total utility in consumer decision making because
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Optimal decisions are made at the margin
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If your total satisfaction increases when you consume another unit, your marginal utility must be
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Positive
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Consumer received 20 utils from two candy bars and 25 utils from consuming three candy bars, the marginal utility of the third candy bar is
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5 Utils
(25-20)=5
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If a consumer receives 22 utils from consuming the first can of soda, 20 utils from consuming the second, and 15 from the third, the total utility of consuming the three units is
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57
(22+20+15)
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If a consumer receives 20 utils from consuming two candy bars, and 25 utils
from consuming three candy bars, the marginal utility of the second candy bar is
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unknown
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If a consumer always buys goods rationally then
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If a consumer always buys goods rationally then the marginal utility per dollar spent on all goods will be equal.
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Carolyn spends her income on popular magazines and music CD's. If the price of a CD is four times the price of a magazine, then of Carolyn is maximizing her utility, she buys
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both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased
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If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandanas purchased, she
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wants to consume more ankle socks and fewer bandanas.
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The slope of an indifference curve measures
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Measures the marginal rate of substitution between the two goods in question
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The absolute value of the slope of the budget constraint is equal to
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the price of good on the horizontal axis divided by the price of the good on the vertical axis
