Explain what is meant by diminishing marginal utility

Assignment Help Microeconomics

Reference no: EM133595684

Problem

Utility maximization is a fundamental concept in consumer theory.

1. Explain what is meant by diminishing marginal utility.

2. Assume that a consumer buys only two goods: D and Z. What is the utility-maximizing decision rule for the consumer in allocating total income to good D and good Z?

3. Assume that a utility-maximizing consumer is spending all of her income on the two goods, D and Z. The price per unit of good D is $2, and the price per unit of good Z is $3. The marginal utility of the last unit of good Z consumed is 15. What is the marginal utility of the last unit of good D consumed?

4. Assume that good D is a normal good and good Z is an inferior good. Assume that the consumer's income does not change. Assume that the price of good D increases.

a. Indicate how the substitution effect of the increase in the price of good D will affect purchases of

(i) Good D (ii) Good Z

b. Indicate how the income effect of the increase in the price of good D will affect purchases of

(i) Good D (ii) Good Z.

Reference no: EM133595684

Questions Cloud

Discuss the two characteristic that define a project : What did you learn? Discuss the two characteristic that define a project. Discuss the leadership skills needed by a successful project manager.

What are positive and negative effects of amazon raising : What are positive and negative effects of Amazon raising its minimum wage to $15 per hour on its employees total revenue and other companies and their employees

Discuss the uses of artificial nutrition for patients : Discuss the uses of artificial nutrition for patients by answering the discussion prompts to complete initial discussion post. After creating your initial post,

What is the capacity of your organization : Describe the factors that negatively or positively influence the 'capacity' of your organization. What is the capacity of your organization?

Explain what is meant by diminishing marginal utility : Explain what is meant by diminishing marginal utility. What is utility-maximizing decision rule for consumer in allocating total income to good D and good Z?

Discuss how the current hypotheses regarding the causes : Discuss how the current hypotheses regarding the causes of Parkinson's disease may explain the observed phenomenon of a person on a bycycle.

Evaluation with potential for program improvement : Identify 2 or 3 goals of your evaluation with potential for program improvement for Department of Homeland Security (DHS) Foreign Policy

Why were anton weichselsbaum findings on meningitis : Why were Anton Weichselsbaum's findings on meningitis so important? What specific events did Weichselsbaum's findings lead to in the sense of meningitis?

How does the state of west virginia go : How does the state of West Virginia go about providing early intervention

User Account

All Pages