Principles of Consumer Utility and Preferences

What is the definition of utility?

The quantity of goods available for consumption
The total quantity of goods consumed
The value or satisfaction from consumption (correct)
The price of goods in the market

What does marginal utility (MU) represent?

The average utility per unit of a good
The utility derived from the first unit of a good
The change in utility from consuming one additional unit of a good (correct)
The total utility from consuming all units of a good

What happens to marginal utility over time?

Marginal utility diminishes over time (correct)
Marginal utility increases over time
Marginal utility fluctuates over time
Marginal utility remains constant over time

What is an indifference curve?

A curve showing consumption bundles that give the consumer the same level of satisfaction (C) Signup and view all the answers

Which property describes the preference order on indifference curves?

Higher indifference curves are preferred to lower ones (B) Signup and view all the answers

What does diminishing marginal utility imply about additional units of a good?

Each additional unit adds less to utility than the previous unit (C) Signup and view all the answers

In economics, what does 'preference' refer to?

What consumers want and prioritize among different options (D) Signup and view all the answers

What is illustrated with indifference curves?

A consumer’s preference among consumption bundles that give the same level of satisfaction (A) Signup and view all the answers

What do downward-sloping indifference curves signify?

As one good increases, the other decreases to maintain constant satisfaction level (B) Signup and view all the answers

According to indifference curve properties, what happens when two indifference curves intersect?

It contradicts the principle that higher indifference curves are preferred to lower ones (B) Signup and view all the answers

What is meant by 'consumption bundles' in economics?

Combinations of goods and services available for purchase by consumers (B) Signup and view all the answers

What is the property of indifference curves that represents larger quantities of goods?

Property 4: Indifference curves are bowed inward (convex to origin) (B) Signup and view all the answers

What does the slope of an indifference curve represent?

The rate at which a consumer is willing to trade one good for another (A) Signup and view all the answers

When does consumer optimum occur?

At the point where the highest indifference curve and the budget constraint are tangent (C) Signup and view all the answers

What is always true about the optimal consumption bundle?

MUA/PA= MUB/PB= …. = MUZ/PZ (subject to budget constraints) for all goods (D) Signup and view all the answers

What does a change in income do to a budget constraint?

Causes it to shift to the right (and vice versa) (A) Signup and view all the answers

What happens when a consumer's valuation of goods equals the market's valuation at their optimum?

The consumer's valuation of goods equals the market's valuation at their optimum (D) Signup and view all the answers

What is true about people's willingness to trade away goods based on Property 5?

People are more willing to trade away goods that they have in abundance and less willing to trade away goods of which they have little (C) Signup and view all the answers

What does an indifference curve show?

Consumption bundles that give the consumer the same level of satisfaction (B) Signup and view all the answers

What does marginal utility (MU) represent?

The change in utility from consuming one additional unit of a good (C) Signup and view all the answers

What happens to marginal utility over time?

Marginal utility diminishes over time (B) Signup and view all the answers

What is true about people's willingness to trade away goods based on Property 5?

People are willing to trade away goods to reach higher indifference curves (B) Signup and view all the answers

What does the slope of an indifference curve represent?

The rate at which the consumer is willing to substitute one good for another while maintaining the same level of satisfaction (A) Signup and view all the answers

What is meant by 'consumption bundles' in economics?

'Consumption bundles' refer to different combinations of goods and services that a consumer can afford with their income (D) Signup and view all the answers

What does diminishing marginal utility imply about additional units of a good?

Each additional unit of a good adds less to utility than the previous unit (B) Signup and view all the answers

When does consumer optimum occur?

Consumer optimum occurs when the highest possible indifference curve is tangent to the budget constraint. (A) Signup and view all the answers

What does a change in income do to a budget constraint?

A change in income shifts or pivots the budget constraint parallelly. (D) Signup and view all the answers

What is always true about the optimal consumption bundle?

It lies on the highest possible indifference curve and within budget constraints. (A) Signup and view all the answers

What do downward-sloping indifference curves signify?

They signify that as more of one good is consumed, less of another good must be consumed to maintain constant satisfaction. (A) Signup and view all the answers

What does an indifference curve illustrate?

Consumption bundles that give the consumer the same level of satisfaction (D) Signup and view all the answers

What does the property 'Higher indifference curves are preferred to lower ones' imply?

Consumers prefer more of a good to less (D) Signup and view all the answers

What does diminishing marginal utility suggest about additional units of a good?

Each additional unit adds less to utility than the previous unit (B) Signup and view all the answers

What does the slope of an indifference curve represent?

The marginal rate of substitution (A) Signup and view all the answers

What is always true about the optimal consumption bundle?

MUA/PA = MUB/PB = ... = MUZ/PZ (subject to budget constraints) for all goods (B) Signup and view all the answers

What does a change in income do to a budget constraint?

Shifts the budget constraint (D) Signup and view all the answers

What does diminishing marginal utility imply about additional units of a good?

Each additional unit adds less and less extra satisfaction (D) Signup and view all the answers

What happens when a consumer's valuation of goods equals the market's valuation at their optimum?

The consumer's optimal choice is reached (D) Signup and view all the answers

What is meant by 'consumption bundles' in economics?

'Consumption bundles' refers to different combinations of goods and services that a consumer can afford given their income and prices of goods. (B) Signup and view all the answers

According to indifference curve properties, what happens when two indifference curves intersect?

It indicates that both combinations are equally preferred by consumers. (B) Signup and view all the answers

What does Property 2 state about indifference curves?

Indifference curves are downward sloping. (C) Signup and view all the answers

Which property describes the preference order on indifference curves?

Property 1: higher indifference curves are preferred to lower ones. (A) Signup and view all the answers

When does consumer optimum occur?

At the point where the highest indifference curve and the budget constraint are tangent. (C) Signup and view all the answers

What does Property 4 state about indifference curves?

Indifference curves are bowed inward (convex to origin). (A) Signup and view all the answers

What is the term used to describe the change in utility from consuming one additional unit of a good?

Diminishing marginal utility (C) Signup and view all the answers

What does an indifference curve illustrate in economics?

Consumer preference among consumption bundles (B) Signup and view all the answers

What is true about indifference curves based on their properties?

Higher indifference curves are preferred to lower ones (C) Signup and view all the answers

What does the slope of an indifference curve represent?

The marginal rate of substitution (B) Signup and view all the answers

What is true about people's willingness to trade away goods based on Property 4?

More willing to trade away goods they have in abundance (D) Signup and view all the answers

What does the property 'Higher indifference curves are preferred to lower ones' imply?

Consumers usually prefer more of something to less of it (D) Signup and view all the answers

What does a change in income do to a budget constraint?

Shifts the budget constraint (D) Signup and view all the answers

What does an indifference curve illustrate in economics?

Consumer preferences for combinations of goods (A) Signup and view all the answers

When does consumer optimum occur?

At the point where the highest indifference curve and the budget constraint are tangent (C) Signup and view all the answers

What is meant by 'consumption bundles' in economics?

Combinations of goods that provide a certain level of satisfaction (A) Signup and view all the answers

What is always true about the optimal consumption bundle?

MUA/PA = MUB/PB = ... = MUZ/PZ (subject to budget constraints) for all goods (B) Signup and view all the answers

What happens when a consumer's valuation of goods equals the market's valuation at their optimum?

The consumer's optimal choice is achieved (B) Signup and view all the answers

What does diminishing marginal utility imply about additional units of a good?

Each additional unit provides less extra satisfaction than the previous one (A) Signup and view all the answers

What does Property 2 state about indifference curves?

They are negatively sloped (D) Signup and view all the answers

What does the slope of an indifference curve represent?

The marginal rate of substitution (B) Signup and view all the answers

What is the property of indifference curves that represents larger quantities of goods?

Higher indifference curves are preferred to lower ones (B) Signup and view all the answers

What happens when a consumer's valuation of goods equals the market's valuation at their optimum?

The consumer's optimal choice is reached (C) Signup and view all the answers

What does Property 2 state about indifference curves?

Indifference curves are downward sloping (C) Signup and view all the answers

When does consumer optimum occur?

At the point where the highest indifference curve and budget constraint are tangent (A) Signup and view all the answers

What does diminishing marginal utility imply about additional units of a good?

Each additional unit provides less extra satisfaction than the previous one (C) Signup and view all the answers

What does Property 4 state about indifference curves?

Indifference curves are bowed inward (convex to origin) (C) Signup and view all the answers

What does a change in income do to a budget constraint?

Shifts it parallel to itself (D) Signup and view all the answers

What is meant by 'consumption bundles' in economics?

Different combinations of goods that a consumer can afford given income and prices (D) Signup and view all the answers

What happens to marginal utility over time?

It decreases as more of a good is consumed (D) Signup and view all the answers

Principles of Consumer Utility and Preferences

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Questions and Answers

What is the definition of utility?

What does marginal utility (MU) represent?

What happens to marginal utility over time?

What is an indifference curve?

Which property describes the preference order on indifference curves?

What does diminishing marginal utility imply about additional units of a good?

In economics, what does 'preference' refer to?

What is illustrated with indifference curves?

What do downward-sloping indifference curves signify?

According to indifference curve properties, what happens when two indifference curves intersect?

What is meant by 'consumption bundles' in economics?

What is the property of indifference curves that represents larger quantities of goods?

What does the slope of an indifference curve represent?

When does consumer optimum occur?

What is always true about the optimal consumption bundle?

What does a change in income do to a budget constraint?

What happens when a consumer's valuation of goods equals the market's valuation at their optimum?

What is true about people's willingness to trade away goods based on Property 5?

What does an indifference curve show?

What does marginal utility (MU) represent?

What happens to marginal utility over time?

What is true about people's willingness to trade away goods based on Property 5?

What does the slope of an indifference curve represent?

What is meant by 'consumption bundles' in economics?

What does diminishing marginal utility imply about additional units of a good?

When does consumer optimum occur?

What does a change in income do to a budget constraint?

What is always true about the optimal consumption bundle?

What do downward-sloping indifference curves signify?

What does an indifference curve illustrate?

What does the property 'Higher indifference curves are preferred to lower ones' imply?

What does diminishing marginal utility suggest about additional units of a good?

What does the slope of an indifference curve represent?

What is always true about the optimal consumption bundle?

What does a change in income do to a budget constraint?

What does diminishing marginal utility imply about additional units of a good?

What happens when a consumer's valuation of goods equals the market's valuation at their optimum?

What is meant by 'consumption bundles' in economics?

According to indifference curve properties, what happens when two indifference curves intersect?

What does Property 2 state about indifference curves?

Which property describes the preference order on indifference curves?

When does consumer optimum occur?

What does Property 4 state about indifference curves?

What is the term used to describe the change in utility from consuming one additional unit of a good?

What does an indifference curve illustrate in economics?

What is true about indifference curves based on their properties?

What does the slope of an indifference curve represent?

What is true about people's willingness to trade away goods based on Property 4?

What does the property 'Higher indifference curves are preferred to lower ones' imply?

What does a change in income do to a budget constraint?

What does an indifference curve illustrate in economics?

When does consumer optimum occur?

What is meant by 'consumption bundles' in economics?

What is always true about the optimal consumption bundle?

What happens when a consumer's valuation of goods equals the market's valuation at their optimum?

What does diminishing marginal utility imply about additional units of a good?

What does Property 2 state about indifference curves?

What does the slope of an indifference curve represent?

What is the property of indifference curves that represents larger quantities of goods?

What happens when a consumer's valuation of goods equals the market's valuation at their optimum?

What does Property 2 state about indifference curves?

When does consumer optimum occur?

What does diminishing marginal utility imply about additional units of a good?

What does Property 4 state about indifference curves?

What does a change in income do to a budget constraint?

What is meant by 'consumption bundles' in economics?

What happens to marginal utility over time?

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