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AREC 150 Test #1 Concepts
Terms in this set (18)
Level of satisfaction obtained from consuming a particular bundle of goods and/or service
An algebraic expression that allows one to rank consumption bundles with respect to satisfaction level
Total Utility= (Q1 x Q2)
What does the equation for utility function represent?
The amount of utility (i.e. satisfaction) is determined by the quantity of good #1 and good #2 consumed
Can quantify how much utility is impacted by consumer choices
Commodity bundle X 3 times the utility than obtained from bundle Y
What is an example of cardinally measurable?
You can only provide a relative ranking of choice
Commodity bundle X provide more utility than bundle Y
Example of ordinary measurable?
The change in your utility (△Utility) as a result of change in the level of consumption (△Q) of a particular good
MUi= △Utility ÷ △Qi
Equation for marginal utility
Marginal utility will decrease as consumption increases
What is the relationship between marginal utility and consumption?
Marginal benefit of last unit consumed decreases as you increase the consumption of a particular good
What is the relationship between marginal benefit and the consumption of a particular good?
MU is the slope of the utility function, △Utility ÷ △QH
What does marginal utility represent?
It is when marginal utility goes to zero at the peak of the total utility curve
What does maximum utility represent?
Which type of measurement do economists use regarding utility
Limits the amount consumers can buy in a particular period
What do budget constraints control?
Allows for the amount of commodities that could be purchased to be determined by their prices
What do fixed budgets control?
Prices do not change with the amount purchased
What is an important assumption?
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