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Questions and Answers
What does the term 'utility' refer to in economic analysis?
What does the term 'utility' refer to in economic analysis?
- The income generated from selling goods
- The pleasure or satisfaction from economic activity (correct)
- The potential profit from investments
- The total cost of goods consumed
What does the ceteris paribus assumption allow economists to do?
What does the ceteris paribus assumption allow economists to do?
- Ignore the effect of one variable on another
- Hold all other factors constant except for the one being studied (correct)
- Change all factors simultaneously
- Focus solely on qualitative aspects of economic choices
Which assumption about consumer behavior suggests that consumers can rank their preferences?
Which assumption about consumer behavior suggests that consumers can rank their preferences?
- Completeness (correct)
- More is Better
- Transitivity
- Rationality
According to the assumptions of consumer behavior, which statement is true about preferences?
According to the assumptions of consumer behavior, which statement is true about preferences?
In the equation of utility, what do the variables X and Y represent?
In the equation of utility, what do the variables X and Y represent?
What does the transitivity assumption imply regarding consumer choices?
What does the transitivity assumption imply regarding consumer choices?
When analyzing utility in economics, what is typically held constant?
When analyzing utility in economics, what is typically held constant?
What is the primary purpose of using the utility concept in economics?
What is the primary purpose of using the utility concept in economics?
Flashcards
Utility
Utility
The satisfaction or pleasure a person receives from economic activity.
Ceteris Paribus Assumption
Ceteris Paribus Assumption
In economics, holding all other factors constant to isolate the effect of one factor.
Utility from two Goods
Utility from two Goods
The satisfaction derived from consuming two products (X and Y), while other factors are held constant.
Completeness (preference)
Completeness (preference)
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Transitivity (preference)
Transitivity (preference)
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More is Better (preference)
More is Better (preference)
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Study Notes
Utility & Choice
- Utility is the pleasure or satisfaction people get from economic activity.
- Economists simplify by focusing on quantifiable goods and the ceteris paribus assumption.
- Ceteris paribus means holding all other factors constant, allowing study of one factor at a time.
Utility from Consuming Two Goods
- Utility from consuming two goods (X and Y) can be shown:
- Utility = U (X, Y; other things) (Equation 2.1)
- Other factors affecting satisfaction are held constant to focus on X and Y.
- Utility = U (X, Y) (Equation 2.2)
Necessary Assumptions for Utility Study
- Completeness: Consumer can compare all choices and rank them.
- Transitivity: If a consumer prefers A to B and B to C, they must also prefer A to C.
- More is Better: More of a good is always preferred to less (other things being equal).
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