Module 5 Flashcards
(27 cards)
amount of satisfaction derived from the
consumption of a commodity.
Utility
measurement unit of utility
Util
19th century economists: Jevons, Walras & Marshal
Cardinal
Asserts that we can assign values for utility.
Cardinal
A consumer derives 25 utils or units of satisfaction from eating a slice of pizza.
Cardinal
Who are the 19th century economists who defined cardinal?
Jevons, Walras & Marshal
20th century economists: Pareto, Hicks, Slutsky
Ordinal
What are the types of utility
Ordinal and Cardinal
This proposes that a ranking of bundles or preferences is enough to describe utility.
Ordinal
additional satisfaction derived from consuming an additional unit of a good or service
Marginal utility
if too much of the good is consumed, the marginal utility may become negative, leading to a decrease in total utility.
TRUE
The consumer prefers derives more satisfaction from a plate of spaghetti compared to a slice of pizza
Ordinal
The economist who defined Ordinal
Pareto, Hicks, Slutsky
overall level of satisfaction derived from consuming a good or service
Total utility
Formula for Marginal Utility
MU = ΔTU / ΔQ
TU initially increases with Q
TRUE
If TU is increasing, MU < 0
FALSE; MU > 0
As more and more of a good are consumed, the process of consumption
will (at some point) yield smaller and smaller additions to utility
Principle of diminishing marginal utility
MU is zero at the highest point of TU
TRUE
level of satisfaction
utility
Possible constraints in real life
Goods are not free: Prices of goods
We need to consider our income or budget
Additional utility derived from
spending the next peso on the good
Marginal utility per peso
Formula for Marginal utility per peso
MU / P
the consumer can maximize utility by equating the marginal utilities per peso of both goods. That is,
MUx / PUx = MUy = PUy
