Ch. 20 Marginal Utility
Terms in this set (33)
Their price is determined by MU not TU.
The diamond-water paradox was solved by knowing that
the change in TU due to a one-unit change in the quantity of a good consumed.
Marginal utility is
tastes and preferences.
The utility that people experience from the consumption of a good depends on
Suppose that Homer derives 45 utils of total utility from eating 4 donuts and 55 utils of total utility from eating 5 donuts. What is Homer's marginal utility from eating the 5th donut?
T/F Utility can be measured objectively.
the change in total utility due to a one-unit change in the qty of a good or service consumed
Economists assume that consumers will always try t maximize their total utility. With a budget, consumers seek combinations of the goods they buy which yield the greatest overall level of satisfaction.
Utility maximization rule
A formula that illustrates the combination of two goods that maximize a consumer's utility.
the want-satisfying power of a good or service
the ____ is an artificial unity by which utility is measured
___________analysis is the study of what happens when small changes take place relaive to the status quo
rise, fall, rise
if MU is positive, total utility must ______. If marginal utility is negative, total utility must________. If marginal utility falls (but is positive) then total utility must ________ at a decreasing rate
economists maintain that as more of a good or service is consumed, per unit of time, its marginal benefit _____. therefore, before buyers will purchase more and more of a good its price must.
maximize, income, maximized
the consumer optimum exists when consumers ________ their TU, subject to such constraints as __________and relative price. in order to optimize, a consumer should allocate his income so that the MU per dollars worth of each good or service he purchases is ___________
less, poorer, less, other goods for A
assume a consumer is in consumer optimum and then the price of good A rises. It is now true that the MU per dollars worth of Good A is _____ than the MU of other goods. The consumer will now feel ________ and probably spend ______ on good A. Furthermore, the consumer will tend to substitute________________
Total, marginal, marginal
although the ________ utility of water is greater than that of diamonds, the ________ utility of diamonds is higher. The price of a good reflects its __________ Utility.
the explicit price of time spent surfing the internet is______ , but the law of diminishing MU implies that a person who places a relatively high value on her time will tend to spend _______ "net surfing".
rises at a decreasing rate
If MU is positive, but falling then TU
MU is positive
when an individuals TU increases with consumption of one more unit of an item, it must be true that the persons
If marginal Utility is negative, then
Consumer optimizing requires that the consumer ?
will substitute Good A for Good B
If MU per dollars worth of Good A exceeds that of Good B for Mr. Capra, then he?
If the price of Good A rises, other things being constant then?
real income will fall
If the price of steak rises, other things constant?
price reflects MU not TU
Diamonds have a higher price than water because?
the analysis of consumer decision making based on utility maximization
a representative unit by which utility is measured
diminishing marginal utility
the principle that as more of any good or service is consumed, its extra benefit declines. Otherwise stated, increases in total utility from the consumption of a good or service become smaller and smaller as more is consumed during a given time period
a choice of a set of goods and services that maximizes the level of satifaction for each consumer, subject to limited income
the tendency of people to substitute cheaper commodities for more expensive commodities
principle of substitution
the principle that consumers shift away from goods and services that become priced relatively higher in favor of goods and serices that are now priced relatively lower.
the value of money for buying goods and services. If your money income stays the same but the price of one good that you are buying goes up, your effective purchasing power falls, and vice versa.
the change in peoples purchasing power that ocurs when other things being constant, the price of one good that they purchase changes. When that price goes up, real income or purchasing power, falls and when that price goes down, real income increases
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