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The Consumer

The consumer

QuestionAnswer
What is a consumer? An individual who makes the decision whether to buy goods or services
What is utility? It is the amount of benefit or satisfaction a consumer gets from consuming a good or service
What are the assumptions of consumer behavior? 1.It is assumed consumers have limited incomes 2.It is assumed that consumers obey the equi-marginal principle 3.It is assumed that consumers will act rationally 4.it is assumed that consumers are subject to the law of diminishing marginal utility
What is an economic good? A product or service which commands a price (must be scarce in relation to demand) ,derives utility (must provide satisfaction) and is transferable (ownership or benefit must be capable of being given from one person to another)
What is marginal utility? the extra utility a consumer gets from consuming an extra unit of the good
What is the law of diminishing marginal utility? States that as more units of a good are consumed , a point will be reached where marginal utility begins to decline
What are the assumptions of the law of diminishing marginal utility? 1.It applies only after a certain minimum has been consumed 2. Sufficient time has not passed for things to change 3.It assumes income doesn't change 4.it does not apply to addictive goods/medicines
What is the equi-marginal principle? It explains the behavior of a consumer in distributing their limited income among various goods and services (MUx/Px=MUy/Py)
Created by: brianmanesis