67 Questions
What is the definition of utility?
The value or satisfaction from consumption
What does marginal utility (MU) represent?
The change in utility from consuming one additional unit of a good
What happens to marginal utility over time?
Marginal utility diminishes over time
What is an indifference curve?
A curve showing consumption bundles that give the consumer the same level of satisfaction
Which property describes the preference order on indifference curves?
Higher indifference curves are preferred to lower ones
What does diminishing marginal utility imply about additional units of a good?
Each additional unit adds less to utility than the previous unit
In economics, what does 'preference' refer to?
What consumers want and prioritize among different options
What is illustrated with indifference curves?
A consumer’s preference among consumption bundles that give the same level of satisfaction
What do downward-sloping indifference curves signify?
As one good increases, the other decreases to maintain constant satisfaction level
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
What is meant by 'consumption bundles' in economics?
Combinations of goods and services available for purchase by consumers
What is the property of indifference curves that represents larger quantities of goods?
Property 4: Indifference curves are bowed inward (convex to origin)
What does the slope of an indifference curve represent?
The rate at which a consumer is willing to trade one good for another
When does consumer optimum occur?
At the point where the highest indifference curve and the budget constraint are tangent
What is always true about the optimal consumption bundle?
MUA/PA= MUB/PB= …. = MUZ/PZ (subject to budget constraints) for all goods
What does a change in income do to a budget constraint?
Causes it to shift to the right (and vice versa)
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
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
What does an indifference curve show?
Consumption bundles that give the consumer the same level of satisfaction
What does marginal utility (MU) represent?
The change in utility from consuming one additional unit of a good
What happens to marginal utility over time?
Marginal utility diminishes over time
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
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
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
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
When does consumer optimum occur?
Consumer optimum occurs when the highest possible indifference curve is tangent to the budget constraint.
What does a change in income do to a budget constraint?
A change in income shifts or pivots the budget constraint parallelly.
What is always true about the optimal consumption bundle?
It lies on the highest possible indifference curve and within budget constraints.
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.
What does an indifference curve illustrate?
Consumption bundles that give the consumer the same level of satisfaction
What does the property 'Higher indifference curves are preferred to lower ones' imply?
Consumers prefer more of a good to less
What does diminishing marginal utility suggest about additional units of a good?
Each additional unit adds less to utility than the previous unit
What does the slope of an indifference curve represent?
The marginal rate of substitution
What is always true about the optimal consumption bundle?
MUA/PA = MUB/PB = ... = MUZ/PZ (subject to budget constraints) for all goods
What does a change in income do to a budget constraint?
Shifts the budget constraint
What does diminishing marginal utility imply about additional units of a good?
Each additional unit adds less and less extra satisfaction
What happens when a consumer's valuation of goods equals the market's valuation at their optimum?
The consumer's optimal choice is reached
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.
According to indifference curve properties, what happens when two indifference curves intersect?
It indicates that both combinations are equally preferred by consumers.
What does Property 2 state about indifference curves?
Indifference curves are downward sloping.
Which property describes the preference order on indifference curves?
Property 1: higher indifference curves are preferred to lower ones.
When does consumer optimum occur?
At the point where the highest indifference curve and the budget constraint are tangent.
What does Property 4 state about indifference curves?
Indifference curves are bowed inward (convex to origin).
What is the term used to describe the change in utility from consuming one additional unit of a good?
Diminishing marginal utility
What does an indifference curve illustrate in economics?
Consumer preference among consumption bundles
What is true about indifference curves based on their properties?
Higher indifference curves are preferred to lower ones
What does the slope of an indifference curve represent?
The marginal rate of substitution
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
What does the property 'Higher indifference curves are preferred to lower ones' imply?
Consumers usually prefer more of something to less of it
What does a change in income do to a budget constraint?
Shifts the budget constraint
What does an indifference curve illustrate in economics?
Consumer preferences for combinations of goods
When does consumer optimum occur?
At the point where the highest indifference curve and the budget constraint are tangent
What is meant by 'consumption bundles' in economics?
Combinations of goods that provide a certain level of satisfaction
What is always true about the optimal consumption bundle?
MUA/PA = MUB/PB = ... = MUZ/PZ (subject to budget constraints) for all goods
What happens when a consumer's valuation of goods equals the market's valuation at their optimum?
The consumer's optimal choice is achieved
What does diminishing marginal utility imply about additional units of a good?
Each additional unit provides less extra satisfaction than the previous one
What does Property 2 state about indifference curves?
They are negatively sloped
What does the slope of an indifference curve represent?
The marginal rate of substitution
What is the property of indifference curves that represents larger quantities of goods?
Higher indifference curves are preferred to lower ones
What happens when a consumer's valuation of goods equals the market's valuation at their optimum?
The consumer's optimal choice is reached
What does Property 2 state about indifference curves?
Indifference curves are downward sloping
When does consumer optimum occur?
At the point where the highest indifference curve and budget constraint are tangent
What does diminishing marginal utility imply about additional units of a good?
Each additional unit provides less extra satisfaction than the previous one
What does Property 4 state about indifference curves?
Indifference curves are bowed inward (convex to origin)
What does a change in income do to a budget constraint?
Shifts it parallel to itself
What is meant by 'consumption bundles' in economics?
Different combinations of goods that a consumer can afford given income and prices
What happens to marginal utility over time?
It decreases as more of a good is consumed
Learn about the concepts of utility, marginal utility, and diminishing marginal utility, as well as consumer preferences. This quiz will test your understanding of how consumers make choices based on the satisfaction they derive from consuming goods.
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