Chapter 6 Microeconomics (Exam 2)
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Consumer surplus for the market
- –Amount consumers are willing to pay minus amount they pay
- –Net benefit for consumers
- –Economic welfare
–Increase consumption as marginal utility is positive
The more of a good consumed
–The smaller the increase in total utility
Marginal utility from each additional unit
–Declines as more is consumed
–Change in total utility from one-unit change in consumption
- -Satisfaction derived from consumption
If marginal utility is positive but diminishes as more units of a good are consumed, then total utility is...
increasing at a decreasing rate.
If total utility is decreasing, then marginal utility is...
Units of utility can be used...
to compare the satisfaction an individual receives from different goods and to compare the marginal utility an individual receives from additional units of the same good.
If the price of all goods is zero, then a utility-maximizing consumer will...
consume additional units of each good as long as the good's marginal utility is positive.
Consumer equilibrium is reached when the consumer's budget is completely exhausted...
and marginal utility divided by price is the same for the last unit consumed of each good.
A consumer's demand curve for a good slopes down because...
of the law of diminishing marginal utility.
As price falls and consumption increases, consumer surplus...
A market demand curve is found by..
adding the quantity demanded by each person at each price.
The law of diminishing marginal rate of substitution implies that indifference curves...
are bowed in to the origin
Consider two goods, X and Y. Assuming the price of X falls...
the substitution effect will cause fewer units of Y to be purchased, whereas the income effect will encourage the purchase of more units of Y.
Law of diminishing marginal utility
marginal utility eventually decreases with each additional unit of the good consumed, other things constant.
the difference between the value of the total utility received from consuming a good and the total expenditure on the good.
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