Micro Economics Cardinal Utility

What is Marginal Utility?

• Marginal Utility is the price of a good or service in the market.

• Marginal Utility is the cost of producing one more unit of a good or service.

• Marginal Utility is the total satisfaction derived from consuming a good or service.

• Marginal Utility is the additional satisfaction or benefit a consumer derives from consuming one more unit of a good or service.

Explain the Law of Diminishing Marginal Utility.

• The Law of Diminishing Marginal Utility states that as a person consumes more of a good or service, the additional satisfaction or utility derived from each additional unit decreases.

• The Law of Increasing Marginal Utility states that as a person consumes more of a good or service, the additional satisfaction derived from each additional unit also increases.

• The Law of Marginal Utility states that the more of a good or service a person consumes, the less satisfaction they derive from it.

• The Law of Constant Marginal Utility states that the additional satisfaction derived from each additional unit remains constant regardless of the quantity consumed.

How does a consumer achieve equilibrium in Micro Economics?

• By purchasing goods randomly without considering prices

• By allocating their budget in a way that the marginal utility per dollar spent is equal across all goods.

• By spending all their budget on one good

• By ignoring the concept of marginal utility

Describe the concept of Indifference Curve Analysis.

• Indifference Curve Analysis is a graphical representation used in microeconomics to show different combinations of two goods that provide equal satisfaction to a consumer.

• Indifference Curve Analysis is a method to determine the optimal production levels for a firm.

• Indifference Curve Analysis is a technique used to calculate the elasticity of demand for a product.

• Indifference Curve Analysis is a tool used in macroeconomics to analyze the impact of government policies on consumer behavior.

Differentiate between Income and Substitution Effect.

• Income effect is the change in consumption patterns due to a change in income tax, while substitution effect is the change in consumption patterns due to a change in sales tax.

• Income effect is the change in consumption patterns due to a change in prices, while substitution effect is the change in consumption patterns due to a change in real income.

• Income effect is the change in consumption patterns due to a change in relative prices, while substitution effect is the change in consumption patterns due to a change in real income.

• Income effect is the change in consumption patterns due to a change in real income, while substitution effect is the change in consumption patterns due to a change in relative prices.

Why is Marginal Utility important in consumer decision-making?

• Marginal Utility helps individuals determine the additional satisfaction or benefit they will receive from consuming one more unit of a good or service, aiding in rational decision-making.

• Marginal Utility is only considered in long-term decisions

• Marginal Utility only applies to luxury goods

• Marginal Utility is irrelevant in consumer decision-making

Provide an example of the Law of Diminishing Marginal Utility.

• Drinking water: The first glass quenches your thirst, but subsequent glasses provide less satisfaction.

• Reading a book: The first chapter is engaging, but interest wanes with each subsequent chapter.

• Eating ice cream: The first scoop brings a lot of enjoyment, but as you continue eating more scoops, the satisfaction you get from each additional scoop decreases.

• Watching a movie: The beginning is exciting, but as the movie progresses, the enjoyment diminishes.

What factors can shift an Indifference Curve?

• Changes in income, changes in the prices of goods, changes in preferences, and changes in expectations.

• Changes in political landscape

• Changes in social media trends

• Changes in weather conditions

How do income changes affect consumer choices?

• Income changes always result in increased consumer spending

• Income changes only affect the price of goods, not the quantity or quality

• Income changes have no impact on consumer choices

• Income changes can influence consumer choices by impacting the quantity and quality of goods and services individuals are able to purchase.

Illustrate the concept of Consumer Equilibrium with a graph.

• Ignoring the concept of marginal utility

• Using a production possibilities curve instead of an indifference curve

• To illustrate consumer equilibrium with a graph, plot the budget line (representing all possible combinations of two goods that can be purchased with a given income) and an indifference curve (representing the consumer's preferences). The point where the budget line is tangent to the indifference curve is the consumer equilibrium point.

• Plotting the supply curve instead of the budget line