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What does the theory of consumer behavior primarily study?
What does the theory of consumer behavior primarily study?
Which approach to consumer behavior suggests that utility can be measured and quantified?
Which approach to consumer behavior suggests that utility can be measured and quantified?
Who introduced the Ordinal Approach to utility in consumer behavior?
Who introduced the Ordinal Approach to utility in consumer behavior?
What differentiates the concepts of utility as proposed by Jevon from those of Marshall?
What differentiates the concepts of utility as proposed by Jevon from those of Marshall?
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How is utility defined in economic terms?
How is utility defined in economic terms?
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What is a key characteristic of utility as described in the content?
What is a key characteristic of utility as described in the content?
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According to the content, how does the utility of a bottle of wine differ between a drinker and a non-drinker?
According to the content, how does the utility of a bottle of wine differ between a drinker and a non-drinker?
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Which of the following correctly describes the relationship between utility and pleasure?
Which of the following correctly describes the relationship between utility and pleasure?
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What happens to total utility if a consumer is forced to consume a glass of water beyond the point of satiety?
What happens to total utility if a consumer is forced to consume a glass of water beyond the point of satiety?
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At which glass of water does the marginal utility first become negative?
At which glass of water does the marginal utility first become negative?
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What is the marginal utility of the 2nd glass of water?
What is the marginal utility of the 2nd glass of water?
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What assumption is made about the consumer in the context of the law of diminishing marginal utility?
What assumption is made about the consumer in the context of the law of diminishing marginal utility?
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Which graphical relation depicts the behavior of marginal utility with the consumption of successive units of water?
Which graphical relation depicts the behavior of marginal utility with the consumption of successive units of water?
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What term is used for the point at which total utility does not increase with additional consumption of water?
What term is used for the point at which total utility does not increase with additional consumption of water?
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What does total utility represent?
What does total utility represent?
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How is marginal utility defined?
How is marginal utility defined?
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What is the marginal utility of the 5th glass of water?
What is the marginal utility of the 5th glass of water?
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At what point does total utility reach its maximum according to the given information?
At what point does total utility reach its maximum according to the given information?
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What assumption about money does the law of diminishing marginal utility rely on?
What assumption about money does the law of diminishing marginal utility rely on?
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In the example provided for apples, what is the marginal utility of consuming the second apple?
In the example provided for apples, what is the marginal utility of consuming the second apple?
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What happens to marginal utility as more apples are consumed based on the provided data?
What happens to marginal utility as more apples are consumed based on the provided data?
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What is the total utility when 3 apples are consumed, according to the table provided?
What is the total utility when 3 apples are consumed, according to the table provided?
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What does a negative marginal utility indicate?
What does a negative marginal utility indicate?
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Which statement is true regarding the relationship between total utility and consumption based on the information provided?
Which statement is true regarding the relationship between total utility and consumption based on the information provided?
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What does it mean for utility to be additive in consumer behavior theory?
What does it mean for utility to be additive in consumer behavior theory?
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Which assumption allows the law of diminishing marginal utility to remain valid?
Which assumption allows the law of diminishing marginal utility to remain valid?
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What happens when the consumption of a commodity is not continuous?
What happens when the consumption of a commodity is not continuous?
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What effect does a sudden change in fashion or customs have on the law of diminishing marginal utility?
What effect does a sudden change in fashion or customs have on the law of diminishing marginal utility?
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In the context of intoxicants, how does the law of diminishing marginal utility apply?
In the context of intoxicants, how does the law of diminishing marginal utility apply?
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In which scenario does the marginal utility of a commodity not diminish?
In which scenario does the marginal utility of a commodity not diminish?
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How does the law of diminishing marginal utility apply to money?
How does the law of diminishing marginal utility apply to money?
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What is required for the law of diminishing marginal utility to hold true?
What is required for the law of diminishing marginal utility to hold true?
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What does the law of diminishing marginal utility state about the relationship between the quantity of a good consumed and the satisfaction derived from it?
What does the law of diminishing marginal utility state about the relationship between the quantity of a good consumed and the satisfaction derived from it?
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How does the law of diminishing marginal utility affect consumer spending decisions?
How does the law of diminishing marginal utility affect consumer spending decisions?
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What principle is the system of modern taxation based on, as derived from the law of diminishing marginal utility?
What principle is the system of modern taxation based on, as derived from the law of diminishing marginal utility?
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At which unit does the law of diminishing marginal utility start applying if a consumer consumes 4 units of video games with utilities 40, 35, 30, and 25?
At which unit does the law of diminishing marginal utility start applying if a consumer consumes 4 units of video games with utilities 40, 35, 30, and 25?
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Which of the following is NOT a consequence of the law of diminishing marginal utility?
Which of the following is NOT a consequence of the law of diminishing marginal utility?
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Why might a finance minister impose a system of progressive taxation based on the law of diminishing marginal utility?
Why might a finance minister impose a system of progressive taxation based on the law of diminishing marginal utility?
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Study Notes
Consumer Behavior Theory
- Human wants are unlimited and resources are scarce, leading to choices in consumption.
- Consumer behavior studies individuals, groups, and organizations in activities related to buying, using, and discarding goods and services.
- Two main approaches to analyzing consumer behavior: Cardinal and Ordinal.
Cardinal Approach
- Utility can be measured and quantified.
- Alfred Marshall proposed the cardinal utility approach.
- Utility can be assigned numerical values like 1, 2, 3, 4.
Ordinal Approach
- Utility cannot be measured numerically but can be ranked and ordered.
- J.R. Hicks and R.G. Allen introduced the ordinal approach in 1928.
Concept of Utility
- Introduced by Jevons in 1835.
- Defined as the power of a commodity or service to satisfy human wants.
- Subjective and differs from person to person.
- Utility is not equal to pleasure or usefulness.
Total Utility and Marginal Utility
- Total Utility is the sum of satisfaction obtained from all units of a commodity consumed over a period of time.
- Marginal Utility is the change in total utility resulting from a one-unit change in consumption.
- Relationship between TU and MU: TU increases at a decreasing rate as MU diminishes.
Law of Diminishing Marginal Utility
- States that as consumption of a good increases, the marginal utility derived from each additional unit decreases.
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Assumptions:
- Rationality
- Constant marginal utility of money
- Diminishing marginal utility
- Utility is additive
- Continuous consumption
- Suitable quantity
- Unchanging character of the consumer
- No change in fashion, taste, or price
- Exceptions include intoxicants, rare collections, and money.
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Practical Importance:
- Foundation of the law of demand: Consumers purchase more of a good as price decreases because the marginal utility of each unit declines.
- Basis of consumer surplus: Consumers gain surplus satisfaction.
- Importance to consumer: Maximize satisfaction by allocating income to different goods.
- Importance to finance minister: Progressive taxation based on the law of diminishing marginal utility.
Questions Related to Law of Diminishing Marginal Utility
- Q.1 Calculate marginal utility for 7 units of apples with given total utilities.
- Q.2 Determine the marginal utility of the 2nd unit of coffee with given total utilities.
- Q.3 Identify the unit at which Diminishing Marginal Utility starts applying for video games with given total utilities.
- Q.4 Determine the marginal utility of the 5th unit of a product with given total utilities.
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Description
Explore the foundations of consumer behavior theory, including the differences between cardinal and ordinal approaches to utility. Understand how human wants and scarce resources influence consumption choices and learn about historical contributions from key economists. This quiz will help reinforce your understanding of these critical concepts.
