9708 · 7.1
Utility flashcards
Revision flashcards for Cambridge 9708 Utility (syllabus 7.1). Flip, recall, then mark a real past-paper question.
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What is total utility (TU)?
The total satisfaction gained from consuming a given quantity of a good.
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What is marginal utility (MU)?
The additional utility gained from consuming one more unit of a good (ΔTU / ΔQ).
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Law of diminishing marginal utility?
As more units of a good are consumed, the extra utility from each additional unit eventually falls, ceteris paribus.
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Equi-marginal principle?
Consumers maximise utility when MU_x/P_x = MU_y/P_y for all goods — equal marginal utility per pound spent.
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Diamond-water paradox?
Water has high total utility (essential) but low marginal utility (abundant); diamonds have low TU but high MU (scarce) — explains price via MU not TU.
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Why does demand slope downward?
As quantity rises, MU falls (diminishing MU). Consumers will only buy more at a lower price, so MU/P stays equal across goods.
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What is Marginal Utility (MU)?
The additional satisfaction or utility gained from consuming one more unit of a good or service. It is calculated as the change in total utility divided by the change in quantity (ΔTU/ΔQ).
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State the Law of Diminishing Marginal Utility.
Ceteris paribus, as a consumer consumes more units of a good, the marginal utility derived from each successive unit will eventually decrease.
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When is Total Utility (TU) maximised?
Total Utility is maximised when Marginal Utility (MU) is equal to zero. Consuming an additional unit at this point would result in negative marginal utility, causing total utility to fall.
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How is the demand curve related to marginal utility?
The law of diminishing marginal utility explains the downward slope of the demand curve. A consumer is willing to pay a price equal to their marginal utility, and since MU falls with quantity, they will only buy more if the price is lower.
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What is the utility-maximising rule for a consumer buying multiple goods?
The equi-marginal principle: a consumer maximises total utility when they allocate their budget so that the ratio of marginal utility to price is equal for every good purchased (MUa/Pa = MUb/Pb).