Ch30 Utility

Front

What is utility?

Back

Utility is a measure of satisfaction that someone receives from the consumption of a good, usually calculated by the price a consumer is willing to pay to consume a good.

Front

What is total utility?

Back

Total utility is the total satisfaction derived from the consumption of all units of a good over a given period of time.

Front

What is marginal utility?

Back

Marginal utility is the additional satisfaction a consumer gains from the consumption of one more unit of a particular good.

Front

What does the law of diminishing marginal utility state?

Back

The law of diminishing marginal utility states that as the consumption of a good increases, the satisfaction from consumption decreases.

Front

What is the equi-marginal principle?

Back

The equi-marginal principle states that consumers maximise their utility when the marginal valuation for each product consumed is the same. Marginal valuation is calculated as marginal utility divided by the price paid for the product.

Front

How is an individual’s demand curve for a product derived?

Back

An individual’s demand curve for a product can be derived by taking different combinations of the marginal valuation and plotting these on a graph. The market demand curve is plotted in the same way, taking into account all consumers of the product.