Work through the list without notes. If you cannot do a statement, follow its link, then come back. Guide = study guide; Practice = practice questions.
Understanding
- I can define marginal benefit, marginal cost and marginal analysis, and state the rule: MB > MC do more, MB < MC do less, MB = MC stop. (Guide: “Thinking at the margin”)
- I can state the assumptions of the rational consumer choice model: limited income, given prices, known preferences, utility maximization and diminishing marginal utility. (Guide: “The model of rational consumer choice”; Practice Q7)
- I can explain diminishing marginal utility and why total utility still rises while marginal utility is positive. (Guide: Figure 1; Practice Q1)
- I can explain why a sunk cost does not change the optimal quantity. (Guide: “Sunk costs do not change the best quantity”; Practice Q2, Q4)
Calculation and graphing
- I can calculate marginal utility from total utility, and total utility from marginal utility. (Guide: “Total utility and marginal utility”; Practice Q1, Q6)
- I can find the optimal quantity from an MB table and a price, and check it with total net benefit. (Guide: Worked example 1; Practice Q4)
- I can draw an MB and MC graph with labelled axes, mark the optimum and show the effect of a higher MC. (Guide: Figure 2; Practice Q5)
- I can calculate MU per dollar and find the utility-maximizing combination of two goods for a given income. (Guide: Worked example 2; Practice Q6)
Reasoning
- I can explain why a consumer should compare MU per dollar, not MU alone, when prices differ. (Guide: “Spending a budget on two goods”; Practice Q3)
- I can show that a combination is not optimal because money is left over or the MU-per-dollar ratios differ, and say which way spending should move. (Practice Q6(d), Q7(b))
- I can explain how a fall in a good’s price changes the utility-maximizing combination. (Practice Q7)
All ticked? You have finished this unit. Move on to Unit 2, Supply and Demand, starting with Topic 2.1, Demand, or return to the course roadmap.