Question

Question 1 2 pts Utility is a hypothetical measure of satisfaction one receives from consuming a good/service. True False

Answer 1

Answer 1 True

Utility is defined as the want satisfying power of a commodity. It is described as the satisfaction that a consumer derives from consumption of given units of commodity. It can be expressed in terms of numerics known as cardinal numbers. The standard unit of measurement of utility is terms as utils.

Answer 2. The price of cup cakes increases.

Budget lines is the price line or the boundary that shows the combination of two good that a Consumer can buy using his given level of income.the two important determinant of budget line are prices and income of consumer. Any increase or decrease in these determinants will cause changes in the budget line.

In the diagram, the increase in price of cupcakes has caused inward pivot. That is budget line shift inward from y axis. Price of tutoring are constant,that is why there is no change in budget line from x axis.

Answer 3). Decrease in income

Parallel shift in budget line takes place when there is change income of consumer or change in prices of both goods. If the income of Consumer will increase, this means that he can buy more now, the budget line shift rightward from both axis. If income of Consumer decrease, budget line shift LEFTWARD from both axis.

Answer 4. Marginal utility per dollar spent is equal for all goods.

Utility maximization refers to a situation where the consumer gets equal satisfaction from consuming both the goods at given income and price.

The Concept is explained in law of equi marginal utility.

The law states that Consumer consuming two or 'n' of goods is said to be in equilibrium where the ratio of Marginal utility and price of good X is equal the ration of Marginal utility to the price of good Y.

MUx/Px = MUy/Py