Diminishing marginal utility

Economic agents are assumed to be ‘utility maximisers’​

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What’s meant by ‘utility’?

• Satisfaction

• Price

• Quantity

• Quality

Traditional economists argue that economic agents must act ‘rationally’ when making choices​

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What does this mean?​

• They make decisions based solely on gaining the lowest possible price

• They make decisions based on emotion, instinct & are influenced by others

• They make decisions based solely on gaining maximum utility and nothing else will influence their decision​

• They make decisions solely on gaining the highest quantity of products and nothing else will influence their decision

Rational decision-making means…​

• Putting the interests of other first

• Maximising satisfaction/utility

• Considering the benefits only

• Having preferences that are not stable

Which of the following does NOT explain why the demand curve slopes downwards?

• The income effect

• The substitution effect

• The law of diminishing marginal utility​

• The law of increasing opportunity cost

The law of diminishing marginal utility states that…

• As quantity consumed decreases, the marginal utility derived from each additional unit decreases.​

• As quantity consumed increases, the marginal utility derived from each additional unit decreases.

• As price increases, the marginal utility derived from each additional unit decreases.​

• As quantity consumed decreases, the price paid by consumers also decreases.

Draw a marginal utility curve and a corresponding total utility curve

What does 'total utility' tell us about a consumer?

• The satisfaction gained from consuming one extra unit of a good

• The maximum number of goods the consumer would want to consume at a given price

• The maximum number of goods the consumer would want to consume irrespective of price​

• The maximum quantity of a good that a consumer consumes

What is marginal utility?

• The additional benefit gained from consuming the next unit

• The additional price incurred from consuming the next unit

• The total utility gained from consumption

• The utility gained when a consumer maximises their consumption of a good

What happens to marginal utility as a consumer continues to consume?

• Marginal utility increases as consumption increases

• Total utility increases as consumption increases

• Marginal utility falls as consumption increases

• Marginal utility decreases as consumption decreases

When is total utility maximised?

• When MU is at its highest

• When MU=O

• When TU=0

• When TU is at its highest