1. Explain briefly the following concepts.
A) Utility
B) Indifference curve
C) Law of diminishing marginal utility
D) Budget line
E) Consumer preference
F) Marginal rate of substitution
A) Utility: Utility refers to the satisfaction or enjoyment that a consumer derives from consuming a particular good or service. It is subjective and varies from person to person.
B) Indifference curve: An indifference curve represents different combinations of two goods that provide the consumer with the same level of satisfaction or utility. It shows the various choices available to a consumer while maintaining the same level of satisfaction.
C) Law of diminishing marginal utility: According to the law of diminishing marginal utility, as a consumer consumes more and more units of a good or service, the additional satisfaction or utility derived from each additional unit decreases. In other words, the more you consume of a particular good, the less satisfaction or utility you get from consuming each additional unit.
D) Budget line: A budget line shows the different combinations of two goods that a consumer can afford given their income and the prices of the goods. It represents all the possible combinations that a consumer can purchase within their budget constraint.
E) Consumer preference: Consumer preference refers to the choices and priorities that a consumer has for different goods or services. It reflects the relative satisfaction or utility that a consumer derives from different combinations of goods.
F) Marginal rate of substitution: The marginal rate of substitution (MRS) represents the rate at which a consumer is willing to trade off one good for another while maintaining the same level of satisfaction. It measures the amount of one good a consumer is willing to give up to obtain an additional unit of another good. The MRS typically decreases as a consumer consumes more of a particular good.