13/08/2025

What does the term ‘utility’ refer to in economics?

• The total revenue earned from selling goods
• The satisfaction derived from consuming a product
• The number of goods a consumer can afford
• The price paid for each unit

Total utility is calculated as:

• TU = MU1 × MU2 × MU3
• TU = Price × Quantity
• TU = U1 + MU2 + MU3 + ...
• TU = Total revenue ÷ Price

Marginal utility is:

• The utility from the first unit consumed
• The increase in utility from consuming an additional unit
• The average utility across all units
• The total cost of consumption

The formula for marginal utility is:

• Change in total utility ÷ Change in quantity
• Total utility ÷ Price
• Price × Quantity
• Total utility – Price

The law of diminishing marginal utility states:

• Marginal utility rises with each extra unit consumed
• Marginal utility falls as more units are consumed
• Total utility always decreases with consumption
• Utility remains constant with more consumption

When marginal utility is zero:

• Total utility is maximised
• Demand is zero
• Price must fall
• Substitution effect is negative

The equi-marginal principle states that consumers maximise satisfaction when:

• MUa = MUb = MUc
• MUa/Pa = MUb/Pb = MUc/Pc
• Pa × MUa = Pb × MUb
• MU is maximised for one product only

Which of the following explains a downward-sloping demand curve?

• Marginal utility increases with consumption
• Marginal utility decreases with consumption
• Marginal cost decreases with output
• Average cost increases with output

One limitation of marginal utility theory is:

• It assumes consumers act irrationally
• It assumes utility can be measured in utils
• It assumes prices always rise
• It ignores consumer preferences

The paradox of value refers to:

• The fact that some expensive goods have high utility
• Essential goods may have low prices while non-essentials have high prices
• Consumers prefer cheap goods
• The relationship between cost and revenue