Consumers always act rationally, seeking to maximise satisfaction for every pound spent on each product they buy.
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What is utility?`
The amount of satisfaction or benefit that a consumer gains from consuming a good or service.
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What is marginal utility?
The satisfaction gained from consuming an additional unit of a good/service.
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What is diminishing marginal utility?
When individuals consume more units of a good/service, the additional units give successively smaller increases in total satisfaction.
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What happens to the price consumers pay with marginal utility?
For the first units, an individual is happy to pay a relatively high price. As marginal utility declines, the price the consumer is willing to pay for additional units decreases.
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Other cards in this set
Card 2
Front
What is utility?`
Back
The amount of satisfaction or benefit that a consumer gains from consuming a good or service.
Card 3
Front
What is marginal utility?
Back
Card 4
Front
What is diminishing marginal utility?
Back
Card 5
Front
What happens to the price consumers pay with marginal utility?
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