What is the main objective of a rational consumer?
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To maximize satisfaction or utility given income and market prices.
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What is the main objective of a rational consumer?
To maximize satisfaction or utility given income and market prices.
What does the assumption of 'utility is ordinal' imply?
Utility cannot be measured absolutely; consumers can only rank their preferences.
What is the main objective of a consumer according to Cardinal Utility Theory?
To maximize satisfaction given limited budget or income.
What is the role of commodity prices in consumer equilibrium?
They are assumed to be constant for the analysis.
What happens to welfare if MUx < Px?
Welfare can be increased by reducing the consumption of X.
What does the Law of Diminishing Marginal Utility state?
As the quantity consumed of a commodity increases, the utility derived from successive units decreases.
How should the individual allocate their income to maximize utility?
By purchasing the optimal quantities of goods X and Y based on their prices and marginal utilities.
What is ordinal utility?
A theory that ranks preferences without measuring the exact utility.
Is the law of diminishing marginal utility an assumption of ordinal utility theory?
False.
What is the total expenditure on bread and injera at equilibrium?
2(3) + 4(4) = 22.
What is the condition for consumer equilibrium when consuming multiple commodities?
The equality of the ratios of marginal utility of individual commodities to their prices must hold.
What is one assumption of consumer equilibrium?
The consumer is rational and aims to maximize utility.
What is the significance of the law of diminishing marginal utility?
It states that as consumption increases, the additional satisfaction from each unit decreases.
What does utility represent in consumer behavior?
The power of a commodity to satisfy human wants.
What are the prices of goods X and Y?
Px = 2 and Py = 1.
How can the consistency assumption be symbolically represented?
If bundle A > B, then B is not greater than A.
Is total utility the sum of all marginal utilities?
True.
What does Q* represent in consumer equilibrium?
Q* represents the quantity demanded at which marginal utility equals price (MU* = P*).
What is the Consumer Maximization Problem?
It involves how consumers allocate their budget to maximize utility.
What happens to marginal utility when consumption exceeds the saturation point?
Marginal utility becomes negative.
What does diminishing marginal utility mean?
The additional satisfaction from consuming more units decreases as consumption increases.
What is the transitivity assumption in consumer choice?
If bundle A is preferred to B and B is preferred to C, then bundle A is preferred to C.
How many quantities of bread (X) should the individual purchase to maximize utility?
3 quantities.
What is the marginal utility when total utility reaches its maximum?
Zero.
How does the cardinal utility approach define utility?
As measurable and quantifiable with a unit of measurement called 'utils'.
What condition must be satisfied for utility maximization?
The marginal utility of one commodity divided by its price must equal the marginal utility of the other commodity divided by its price.
How does total utility change with increased consumption of bananas according to the example?
Total utility increases but at a decreasing rate.
What does the utility schedule for commodities X and Y indicate?
It shows the quantity and corresponding marginal utility for each commodity.
What is the marginal utility when 7 bananas are consumed?
0 utils.
What does ordinal utility theory focus on?
Ranking consumption bundles according to preferences rather than measuring utility absolutely.
What does the total utility of a consumer depend on?
The quantity of the commodity consumed.
What is the consistency assumption in consumer choice?
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.
What is the total utility when 1 banana is consumed?
12 utils.
What is the Diminishing Marginal Rate of Substitution (DMRS)?
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.
What is the unit of measurement for satisfaction in Cardinal Utility Theory?
Utils.
What does it mean if the marginal utility of money remains constant?
It implies that the utility derived from each additional unit of money does not change.
How does Cardinal Utility Theory view utility?
As measurable like weight, height, and temperature.
How does utility differ from usefulness?
Usefulness is a concern of the product, while utility is a concern of the consumer.
What happens if the Marginal Utility (MU) of good X is greater than its price?
The consumer can increase utility by purchasing more units of good X.
What is the consumers' budget equation?
PX * QX = Income/budget of the consumer.
When does a consumer reach equilibrium under the cardinal utility approach?
When the marginal utility of the commodity equals its price.
Can consumers express utility in absolute terms according to ordinal utility theory?
No, they can only express utility in relative terms by ranking preferences.
What is the main focus of the theory of consumer behavior?
How consumers decide on the basket of goods and services to maximize their satisfaction/utility.
How is consumer equilibrium achieved when consuming one commodity?
When the marginal utility of the commodity equals its market price.
At what point does total utility reach its maximum according to the provided data?
When the quantity consumed is 4, where total utility is 22.
What is the marginal utility when 2 bananas are consumed?
10 utils.
How can consumers rank their preferences according to ordinal utility theory?
By ordering various baskets of goods based on the satisfaction each provides.
How can the transitivity assumption be symbolically represented?
If bundle A > B and B > C, then A > C.
What is the relationship between consumer income and budget?
Consumer income determines the budget, which shows the number of goods and services affordable.
What does the assumption of 'Constant Marginal Utility of Money' imply?
The utility derived from each successive unit of money income remains constant.
What are the main assumptions of the cardinal utility theory?
Utility can be measured in numerical terms, and consumers aim to maximize their total utility.
What is the condition for constrained utility maximization?
The ratio of the marginal utility to the price of each good should be equal.
What is the maximum total utility obtained from the consumption of these commodities?
The total utility is not explicitly provided in the text but can be calculated based on the utility table.
What must be equal for utility to be maximized across multiple commodities?
The utility derived from spending an additional unit of money must be the same for all commodities.
What is the marginal utility when 3 bananas are consumed?
7 utils.
What does the graphical representation of total utility and marginal utility show?
The relationship between total utility and marginal utility.
When we rank the utility gained from the consumption of different commodities, we are measuring utility:
B. Ordinally.
How do you calculate the marginal utility of goods X and Y?
Marginal Utility (MU) is calculated by finding the change in Total Utility (TU) when one additional unit of the good is consumed.
What happens if a consumer derives greater utility from one commodity?
They can increase satisfaction by spending more on that commodity and less on others until equilibrium is reached.
At what quantity of bread does the consumer reach equilibrium?
2 quantities of bread.
What indicates a consumer's equilibrium position?
When the last unit of currency spent on each commodity yields the same utility.
What is the highest satisfaction level (utils) a consumer can attain according to the theory?
37 utils.
What is the income of the individual in the consumer behavior scenario?
Birr 22.
What are the prices of bread (X) and injera (Y)?
Px = Birr 2 and Py = Birr 4.
What is the definition of utility?
Utility is the level of satisfaction or pleasure derived from the consumption of a good or service.
What does the relativity of utility imply?
The utility of a commodity is subjective to a person's needs and varies among different consumers.
How many quantities of injera (Y) should the individual purchase to maximize utility?
4 quantities.
At what quantity of bananas does the total utility reach its saturation point?
7 quantities.
Does total utility increase as long as marginal utility is positive?
True.
What is the demand curve?
The demand curve is the graphical representation of the relationship between price and quantity demanded.
What are the two approaches to measuring utility?
Cardinal utility and ordinal utility.
What occurs if the Marginal Utility (MU) of good X is less than its price?
The consumer can increase utility by purchasing less of good X.
What does it mean for utility to be a cardinal concept?
It means the utility of each commodity is measurable.
How can the utility of drinking tea vary for the same consumer?
The utility may differ when drinking tea early in the morning compared to during lunch time.
What does MU represent in the context of consumer behavior?
MU represents marginal utility.
Which assumption is common in Cardinal and Ordinal approaches?
B. Diminishing marginal utility.
What is marginal utility (MU)?
The additional utility obtained from consuming one more unit of a commodity.
What is the marginal utility when 5 units of a commodity are consumed according to the provided table?
0 utils.
What does a consumer budget represent?
The actual purchasing potential based on income and prices.
What is the formula for Total Utility (TU) in terms of Marginal Utility (MU)?
TU = ∑MUs = ∑MUx + ∑MUy.
What is the Total Utility (TU) calculated for goods X and Y?
TU = 40 utils.
What is the condition for increasing welfare when consuming commodity X?
If MUx > Px, the consumer can increase welfare by purchasing more units of X.
What are the two approaches for measuring utility?
Cardinal Utility and Ordinal Utility approaches.
What is the total income of the individual consuming goods X and Y?
Birr 10.
Can the utility of a product change based on time and place?
Yes, the utility can vary at different times and places for the same consumer.
What condition indicates that a consumer is in equilibrium?
When Total Utility (TU) of good X equals the price of good X (TU_X = P_X).
What happens to total utility after consuming 7 bananas?
It begins to decrease, leading to dissatisfaction.
What does the law of diminishing marginal utility state?
As the amount consumed of a commodity increases, the marginal utility derived from additional units decreases.
What is the law of diminishing marginal utility?
The utility gained from successive units of a commodity diminishes.
How does total utility change as more bananas are consumed initially?
It initially increases.
Can consumers express utility in absolute terms according to the ordinal utility approach?
No, they can only express it in relative terms.
How is total utility (TU) mathematically represented?
TU = f(X1, X2, ..., Xn), where X represents the quantities of individual commodities.
What condition must be met for a consumer's equilibrium?
The utility derived from spending an additional unit of money must be the same for all commodities.
If Beka's total utility increases from 10 to 12 utils by consuming an additional orange, what is the marginal utility of that orange?
2 utils.
What does a negative marginal utility indicate?
That consuming an additional unit of a commodity decreases total utility.
What does the ordinal utility approach argue about utility?
That utility has only ordinal value and can only be ordered and ranked.
What is the equation representing the consumer's equilibrium expenditure?
PxX + PyY = I.
What are the assumptions of ordinal utility theory?
Consumers have consistent and transitive preferences.
Can the level of satisfaction from commodities be measured in monetary units in ordinal utility?
False.
What happens to Marginal Utility when the Total Utility curve reaches its maximum point?
Marginal Utility becomes zero.
What is the total utility when 2 bananas are consumed?
22 utils.
What is the assumption regarding consumer rationality in Cardinal Utility Theory?
The consumer is rational and aims to maximize satisfaction.
What is the consumer's budget equation?
Consumer’s Income = Expenditure on A + Expenditure on B + ... + Expenditure on N.
How is marginal utility (MU) calculated?
MU = ΔTU / ΔQ, where ΔTU is the change in total utility and ΔQ is the change in quantity consumed.
What is the total utility when 4 units of a commodity are consumed according to the provided table?
24 utils.
What is the formula for consumer equilibrium in terms of marginal utility?
MU_bread / P_bread = 1.
Why might non-smokers derive no utility from cigarettes?
Because utility is subjective and varies based on individual needs and preferences.
Can consistency and transitivity be applied to a single commodity case?
True.
What is one common assumption for both cardinal and ordinal utility approaches?
Consumers aim to maximize their utility.
What quantities of goods X and Y should a consumer buy to maximize total utility based on the provided data?
The consumer should buy the combination of goods that maximizes the total utility without exceeding the budget.
What are the assumptions of ordinal utility theory?
Consumers can rank their preferences but do not assign numerical values to utility.
What is the relationship between marginal utility and price for quantities greater than 2?
Marginal utility of bread is less than the price, allowing the consumer to increase utility by reducing consumption.
What does the law of diminishing marginal utility state?
As a consumer consumes more of a good, the additional satisfaction (utility) gained from each additional unit decreases.
How much total utility does the individual receive when maximizing utility?
The total utility is calculated based on the quantities of X and Y purchased.
What is required for a consumer to achieve a higher level of satisfaction?
The ability to compare the utility of various baskets of goods.
What is meant by the marginal rate of substitution?
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.
Given the prices of goods X and Y, how much can a consumer spend if the price of good X is 1 and good Y is 3 with a budget of 10 birr?
The consumer can buy a combination of goods X and Y that does not exceed 10 birr.
What does total utility (TU) refer to?
The total amount of satisfaction a consumer gets from consuming specific quantities of a commodity at a particular time.
What happens to total utility as a consumer consumes more of a good?
Total utility increases until a saturation point is reached.
What is the consumer optimum under cardinal approaches?
The point at which a consumer maximizes their utility given their budget constraint.
What is the saturation point in the context of total utility?
The point after which a consumer cannot enjoy any greater satisfaction from consuming more of a commodity.
What does the marginal utility per Birr indicate?
It shows the additional utility gained from spending one more Birr on a commodity.
How is utility expressed in the ordinal utility approach?
In relative terms, by ranking different consumption bundles according to preferences.
Does ordinal utility attach figures to utility measurement while cardinal utility ranks market baskets?
False.
Which statement is false about utility?
A. The utility of a product can be different at different places and time.
What principle describes the diminishing marginal rate of substitution?
As a consumer substitutes one good for another, the additional satisfaction (utility) gained from each additional unit of the substituted good decreases.
What is true if total utility is increasing at a decreasing rate?
C. Marginal utility is decreasing.
What is the price of bread in the example given?
2 Birr per unit.
What is the relationship between marginal utility and price for quantities less than 2?
Marginal utility of bread is higher than the price, allowing the consumer to increase utility by consuming more.
What is the primary focus of the theory of consumer behavior?
How a consumer decides on the basket of goods and services to maximize satisfaction.
What is a consumer defined as in the context of consumer behavior?
A decision-making unit (an individual or a household) who uses or consumes a commodity or service.
What are the key assumptions of the theory of consumer behavior?
The consumer has a limited income and is assumed to be rational.
How does a consumer decide to spend their income according to the theory?
By spending on goods and services that provide the highest possible satisfaction or utility.
What information is a consumer assumed to have when making decisions?
Relevant information about their income, available commodities, and their prices.
What is cardinal utility?
A measure of utility that assigns a numerical value to the satisfaction derived from consuming goods and services.
