AP Micro marginal utility and consumer choice key terms
This study set covers key terms related to marginal utility and consumer choice in AP Microeconomics, helping students understand essential concepts for the exam.
Quiz(32 questions)
1. What is the definition of marginal utility?
Terms in this Study Set(32)
Marginal Utility Concepts(16)
What is marginal utility?
Marginal utility is the additional satisfaction or benefit received from consuming one more unit of a good or service.
Define diminishing marginal utility.
Diminishing marginal utility refers to the decrease in additional satisfaction as more units of a good are consumed.
True or False: Total utility can decrease.
False. Total utility can increase or stay the same, but it cannot decrease.
Fill in the blank: The principle of __________ states that consumers will continue to consume until marginal utility equals price.
equimarginal utility.
How does marginal utility affect consumer choice?
Consumers allocate their budgets to maximize total utility by purchasing goods until the marginal utility per dollar spent is equal.
What happens when marginal utility is zero?
When marginal utility is zero, consuming additional units of a good provides no additional satisfaction, leading to no further consumption.
Cause → Effect: As consumption increases, marginal utility _________ .
decreases.
Compare total utility and marginal utility.
Total utility is the overall satisfaction from consumption; marginal utility is the change in total utility from consuming an additional unit.
What is the formula for marginal utility?
Marginal Utility (MU) = Change in Total Utility / Change in Quantity.
Example: If consuming a third slice of pizza adds 3 utils and the second added 5, what's the marginal utility of the third?
3 utils.
What does it mean if marginal utility per dollar spent is higher for one good?
It indicates consumers will buy more of that good to maximize total utility.
True or False: A good can have high total utility but low marginal utility.
True. This often occurs with essential goods consumed beyond a certain quantity.
Fill in the blank: The law of __________ states that as consumption increases, marginal utility declines.
diminishing marginal utility.
When should a consumer stop purchasing an additional unit?
A consumer should stop when the price of an additional unit equals its marginal utility.
What happens if the marginal utility of a product exceeds its price?
Consumers will buy more of that product until the marginal utility equals the price.
How does the concept of marginal utility help explain consumer behavior?
It shows how consumers make decisions based on the additional satisfaction they expect from each unit of a good.
Consumer Choice and Demand(16)
What is consumer choice?
Consumer choice refers to the decision-making processes that consumers use when allocating their resources to purchase goods and services.
True or False: Consumers always make rational choices.
False. Consumers may act irrationally due to biases or incomplete information.
Fill in the blank: The ______ curve shows the relationship between price and quantity demanded.
demand
What is a budget constraint?
A budget constraint represents the combinations of goods a consumer can afford given their income, prices, and preferences.
Comparison: Normal goods vs. inferior goods.
Normal goods: demand increases with income. Inferior goods: demand decreases with income.
What does the law of demand state?
The law of demand states that, all else equal, as the price of a good decreases, the quantity demanded increases.
Cause → Effect: Increase in consumer income.
Effect: Demand for normal goods typically increases.
What is the substitution effect?
The substitution effect occurs when consumers replace cheaper goods with more expensive ones when prices change.
True or False: Price elasticity of demand is always negative.
True. Price elasticity of demand measures responsiveness and is negative due to the inverse relationship between price and quantity demanded.
What is a Giffen good?
A Giffen good is a type of inferior good for which demand increases as its price rises, violating the law of demand.
What is marginal utility?
Marginal utility is the additional satisfaction or benefit gained from consuming one more unit of a good or service.
Fill in the blank: _______ goods experience an inverse relationship with price.
Normal
How does consumer preference affect demand?
Consumer preferences shape their choices, influencing the quantity demanded for certain goods based on tastes and trends.
Example: If pizza prices drop, what happens?
Quantity demanded for pizza increases due to the law of demand.
What is total utility?
Total utility is the overall satisfaction received from consuming a certain quantity of goods or services.
Comparison: Elastic vs. inelastic demand.
Elastic demand: quantity demanded changes significantly with price changes. Inelastic demand: quantity demanded changes little with price changes.
Questions in this Study Set(32)
1. What is the definition of marginal utility?
2. What does the term 'utility' refer to in economics?
3. Which of the following best describes diminishing marginal utility?
4. Which of the following best describes the concept of opportunity cost?
5. True or False: Total utility can ever decrease.
6. True or False: Consumers will always choose the option that maximizes their total utility.
7. Fill in the blank: The principle of __________ states that consumers will continue to consume until marginal utility equals price.
8. What is the law of diminishing marginal utility?
9. How does marginal utility influence consumer choices?
10. Which of the following is NOT a factor that influences consumer choice?
11. What does it indicate when marginal utility is zero?
12. How does an increase in the price of a substitute good affect the demand for a product?
13. Cause → Effect: As consumption increases, marginal utility __________.
14. What is the primary reason for the downward slope of the demand curve?
15. How do total utility and marginal utility differ?
16. Which of the following best illustrates a normal good?
17. What is the formula for calculating marginal utility?
18. What is the effect of a decrease in consumer income on the demand for inferior goods?
19. If consuming a third slice of pizza yields 4 utils and the second slice yielded 6 utils, what is the marginal utility of the third slice?
20. True or False: Giffen goods violate the law of demand.
21. What does it mean if the marginal utility per dollar spent is higher for one good compared to another?
22. What happens to the quantity demanded of a good when its price rises, according to the law of demand?
23. True or False: A good can have high total utility but low marginal utility.
24. In terms of consumer choice, what is a 'budget constraint'?
25. Fill in the blank: The law of __________ states that as consumption increases, marginal utility declines.
26. If the price of a good decreases, what effect does this have on the quantity demanded?
27. When should a consumer stop purchasing an additional unit of a good?
28. Which of the following terms describes a situation where demand does not change significantly with price changes?
29. What occurs if the marginal utility of a product exceeds its price?
30. What does 'marginal utility per dollar' refer to?
31. How does the concept of marginal utility explain consumer behavior?
32. Which of the following situations best illustrates the concept of the substitution effect?
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