MicroeconomicsLesson 1 of 1 in the course Consumer Choices

Consumer Utility, Budget Constraints, and Equilibrium

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

This lesson introduces household consumption patterns and explains why spending choices differ from one household to another. It provides a real-world starting point for studying how people use limited income.

The U.S. Bureau of Labor Statistics conducts the Consumer Expenditure Survey, which gathers information about how households spend money. In 2010, the average U.S. household had income before taxes of $62,481 and average annual expenditures of $48,109. The expenditure figure describes consumption spending; taxes and personal savings are not included in it.

All flashcards

Total utility
The overall satisfaction from consuming a given quantity of a good.
Marginal utility
The additional satisfaction from consuming one more unit of a good.
Budget constraint
The combinations of goods a consumer can afford at given income and prices.
Marginal utility per dollar
The additional utility from a good divided by its price.
Consumer equilibrium
An affordable allocation with no beneficial reallocation of spending.

Quiz questions

  1. At an interior utility-maximizing allocation of two goods, what relationship holds?Answer: Marginal utility per dollar is equal across the goods.
  2. A consumer's total utility rises from 22 utils after one unit to 43 utils after two units. What is the marginal utility of the second unit?Answer: 21 utils.
  3. What does the law of diminishing marginal utility describe, all else equal?Answer: Successive units provide smaller additions to satisfaction.
  4. What does a budget constraint show when a consumer's income and prices are given?Answer: Which combinations of goods the consumer can afford.
  5. One person assigns 20 utils to a good and another assigns 10 utils to it. What can be concluded from these numbers?Answer: The numbers do not establish a direct comparison of their satisfaction.

Based on Principles of Economics 3e by Steven A. Greenlaw, David Shapiro, Daniel MacDonald (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.

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