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Economics Basics: Definitions and Theories

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Questions and Answers

What is the meaning of utility in economics?

The want-satisfying power of a commodity or service.

What are the characteristics of utility?

Utility is psychological, personal, relative, and has no moral significance or ethics.

What are the different types of utility?

Form utility, place utility, possession utility, and time utility.

What is the Law of Diminishing Marginal Utility?

A law that states that the marginal utility of a commodity decreases as its consumption increases. Signup and view all the answers

What are the assumptions of the Law of Diminishing Marginal Utility?

The consumer is rational, utility can be measured in terms of utils, constant marginal utility of money, homogeneous units of a commodity, continuous consumption, and no change in taste or preferences. Signup and view all the answers

What is an application of the Law of Diminishing Marginal Utility in taxation?

Progressive taxation, where the marginal tax rate increases as income increases. Signup and view all the answers

What is the concept of Consumer Surplus?

The difference between what a consumer is willing to pay and what they actually pay for a good or service. Signup and view all the answers

Who formulated the concept of Consumer Surplus?

Jevons and Dupit, later improved by Alfred Marshall. Signup and view all the answers

What is the basis for the Law of Demand?

The Law of Diminishing Marginal Utility. Signup and view all the answers

What is the significance of the Law of Diminishing Marginal Utility in microeconomics?

It provides insights into consumer behavior and is a fundamental concept in microeconomics. Signup and view all the answers

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