A decision-making unit (an individual or a household) who uses or consumes a commodity or service.
How a consumer decides on the basket of goods and services to maximize satisfaction.
The consumer has a limited income and is assumed to be rational.
By spending on goods and services that provide the highest possible satisfaction or utility.
Relevant information about their income, available commodities, and their prices.
A measure of utility that assigns a numerical value to the satisfaction derived from consuming goods and services.
As a consumer consumes more of a good, the additional satisfaction (utility) gained from each additional unit decreases.
To maximize satisfaction or utility given income and market prices.
Utility cannot be measured absolutely; consumers can only rank their preferences.
To maximize satisfaction given limited budget or income.
They are assumed to be constant for the analysis.
Welfare can be increased by reducing the consumption of X.
As the quantity consumed of a commodity increases, the utility derived from successive units decreases.
By purchasing the optimal quantities of goods X and Y based on their prices and marginal utilities.
A theory that ranks preferences without measuring the exact utility.
False.
2(3) + 4(4) = 22.
The equality of the ratios of marginal utility of individual commodities to their prices must hold.
The consumer is rational and aims to maximize utility.
It states that as consumption increases, the additional satisfaction from each unit decreases.
The power of a commodity to satisfy human wants.
Px = 2 and Py = 1.
If bundle A > B, then B is not greater than A.
True.
Q* represents the quantity demanded at which marginal utility equals price (MU* = P*).
It involves how consumers allocate their budget to maximize utility.
Marginal utility becomes negative.
The additional satisfaction from consuming more units decreases as consumption increases.
If bundle A is preferred to B and B is preferred to C, then bundle A is preferred to C.
3 quantities.
Zero.
As measurable and quantifiable with a unit of measurement called 'utils'.
The marginal utility of one commodity divided by its price must equal the marginal utility of the other commodity divided by its price.
Total utility increases but at a decreasing rate.
It shows the quantity and corresponding marginal utility for each commodity.
0 utils.
Ranking consumption bundles according to preferences rather than measuring utility absolutely.
The quantity of the commodity consumed.
If a consumer chooses bundle A over B in one period, they will not choose B over A in another period under the same conditions.
12 utils.
The rate at which a consumer is willing to substitute one commodity for another while maintaining the same level of satisfaction diminishes as consumption increases.
Utils.
It implies that the utility derived from each additional unit of money does not change.
As measurable like weight, height, and temperature.
Usefulness is a concern of the product, while utility is a concern of the consumer.
The consumer can increase utility by purchasing more units of good X.
PX * QX = Income/budget of the consumer.
When the marginal utility of the commodity equals its price.
No, they can only express utility in relative terms by ranking preferences.
How consumers decide on the basket of goods and services to maximize their satisfaction/utility.
When the marginal utility of the commodity equals its market price.
When the quantity consumed is 4, where total utility is 22.
10 utils.
By ordering various baskets of goods based on the satisfaction each provides.
If bundle A > B and B > C, then A > C.
Consumer income determines the budget, which shows the number of goods and services affordable.
The utility derived from each successive unit of money income remains constant.
Utility can be measured in numerical terms, and consumers aim to maximize their total utility.
The ratio of the marginal utility to the price of each good should be equal.
The total utility is not explicitly provided in the text but can be calculated based on the utility table.
The utility derived from spending an additional unit of money must be the same for all commodities.
7 utils.
The relationship between total utility and marginal utility.
B. Ordinally.
Marginal Utility (MU) is calculated by finding the change in Total Utility (TU) when one additional unit of the good is consumed.
They can increase satisfaction by spending more on that commodity and less on others until equilibrium is reached.
2 quantities of bread.
When the last unit of currency spent on each commodity yields the same utility.
37 utils.
Birr 22.
Px = Birr 2 and Py = Birr 4.
Utility is the level of satisfaction or pleasure derived from the consumption of a good or service.
The utility of a commodity is subjective to a person's needs and varies among different consumers.
4 quantities.
7 quantities.
True.
The demand curve is the graphical representation of the relationship between price and quantity demanded.
Cardinal utility and ordinal utility.
The consumer can increase utility by purchasing less of good X.
It means the utility of each commodity is measurable.
The utility may differ when drinking tea early in the morning compared to during lunch time.
MU represents marginal utility.
B. Diminishing marginal utility.
The additional utility obtained from consuming one more unit of a commodity.
0 utils.
The actual purchasing potential based on income and prices.
TU = ∑MUs = ∑MUx + ∑MUy.
TU = 40 utils.
If MUx > Px, the consumer can increase welfare by purchasing more units of X.
Cardinal Utility and Ordinal Utility approaches.
Birr 10.
Yes, the utility can vary at different times and places for the same consumer.
When Total Utility (TU) of good X equals the price of good X (TU_X = P_X).
It begins to decrease, leading to dissatisfaction.
As the amount consumed of a commodity increases, the marginal utility derived from additional units decreases.
The utility gained from successive units of a commodity diminishes.
It initially increases.
No, they can only express it in relative terms.
TU = f(X1, X2, ..., Xn), where X represents the quantities of individual commodities.
The utility derived from spending an additional unit of money must be the same for all commodities.
2 utils.
That consuming an additional unit of a commodity decreases total utility.
That utility has only ordinal value and can only be ordered and ranked.
PxX + PyY = I.
Consumers have consistent and transitive preferences.
False.
Marginal Utility becomes zero.
22 utils.
The consumer is rational and aims to maximize satisfaction.
Consumer’s Income = Expenditure on A + Expenditure on B + ... + Expenditure on N.
MU = ΔTU / ΔQ, where ΔTU is the change in total utility and ΔQ is the change in quantity consumed.
24 utils.
MU_bread / P_bread = 1.
Because utility is subjective and varies based on individual needs and preferences.
True.
Consumers aim to maximize their utility.
The consumer should buy the combination of goods that maximizes the total utility without exceeding the budget.
Consumers can rank their preferences but do not assign numerical values to utility.
Marginal utility of bread is less than the price, allowing the consumer to increase utility by reducing consumption.
The total utility is calculated based on the quantities of X and Y purchased.
The ability to compare the utility of various baskets of goods.
It refers to the rate at which a consumer is willing to give up one good for another while maintaining the same level of utility.
The consumer can buy a combination of goods X and Y that does not exceed 10 birr.
The total amount of satisfaction a consumer gets from consuming specific quantities of a commodity at a particular time.
Total utility increases until a saturation point is reached.
The point at which a consumer maximizes their utility given their budget constraint.
The point after which a consumer cannot enjoy any greater satisfaction from consuming more of a commodity.
It shows the additional utility gained from spending one more Birr on a commodity.
In relative terms, by ranking different consumption bundles according to preferences.
False.
A. The utility of a product can be different at different places and time.
As a consumer substitutes one good for another, the additional satisfaction (utility) gained from each additional unit of the substituted good decreases.
C. Marginal utility is decreasing.
2 Birr per unit.
Marginal utility of bread is higher than the price, allowing the consumer to increase utility by consuming more.
