EKN 110 QUESTIONS WITH
SOLUTIONS!!
Utility -ANSWERthe want-satisfying power of a good or service
3 characteristics of utility -ANSWER1. "utility" and "usefulness" are not synonymous
2. utility is subjective
3. utility is difficult to quantify
total utility -ANSWERthe total amount of satisfaction derived from consumption of a
single product or a combination of products
marginal utility -ANSWERThe extra utility a consumer obtains from the consumption
of 1 additional unit of a good or service; equal to the change in total utility divided by
the change in the quantity consumed.
law of diminishing marginal utility -ANSWERThe principle that as a consumer
increases the consumption of a good or service, the marginal utility obtained from
each additional unit of the good or service decreases.
Why is the demand curve downward sloping? -ANSWERThe law of diminishing
marginal utility-as more of a product is consumed, the marginal benefit to the
consumer falls, hence the consumer is prepared to pay less
The income effect-As prices rise, the amount of disposable income falls
The substitution effect-As prices rise, consumers will start to evaluate alternatives
cardinal utility -ANSWERA form of utility measurement where utility is measurable in
numerical values.
ordinal utility -ANSWERA form of utility measurement where consumers' satisfaction
is not quantifiable but the level of satisfaction is based on comparisons in
consumptions expressed in indifference curves.
marginal rate of substitution (MRS) -ANSWERThe rate at which a consumer is
willing to substitute one good for another (from a given combination of goods) and
remain equally satisfied (have the same total utility); equal to the slope of a
consumer's indifference curve at each point on the curve.
indifference map -ANSWERA set of indifference curves, each representing a
different level of utility, which together show the preferences of a consumer
rational behavior -ANSWERhuman behavior based on comparison of marginal costs
and marginal benefits; behavior designed to maximize total utility
SOLUTIONS!!
Utility -ANSWERthe want-satisfying power of a good or service
3 characteristics of utility -ANSWER1. "utility" and "usefulness" are not synonymous
2. utility is subjective
3. utility is difficult to quantify
total utility -ANSWERthe total amount of satisfaction derived from consumption of a
single product or a combination of products
marginal utility -ANSWERThe extra utility a consumer obtains from the consumption
of 1 additional unit of a good or service; equal to the change in total utility divided by
the change in the quantity consumed.
law of diminishing marginal utility -ANSWERThe principle that as a consumer
increases the consumption of a good or service, the marginal utility obtained from
each additional unit of the good or service decreases.
Why is the demand curve downward sloping? -ANSWERThe law of diminishing
marginal utility-as more of a product is consumed, the marginal benefit to the
consumer falls, hence the consumer is prepared to pay less
The income effect-As prices rise, the amount of disposable income falls
The substitution effect-As prices rise, consumers will start to evaluate alternatives
cardinal utility -ANSWERA form of utility measurement where utility is measurable in
numerical values.
ordinal utility -ANSWERA form of utility measurement where consumers' satisfaction
is not quantifiable but the level of satisfaction is based on comparisons in
consumptions expressed in indifference curves.
marginal rate of substitution (MRS) -ANSWERThe rate at which a consumer is
willing to substitute one good for another (from a given combination of goods) and
remain equally satisfied (have the same total utility); equal to the slope of a
consumer's indifference curve at each point on the curve.
indifference map -ANSWERA set of indifference curves, each representing a
different level of utility, which together show the preferences of a consumer
rational behavior -ANSWERhuman behavior based on comparison of marginal costs
and marginal benefits; behavior designed to maximize total utility
