Utility theory is important for understanding consumer choice. 1. Define total utility. 2. Define marginal utility. 3.

Question:

Utility theory is important for understanding consumer choice.
1. Define total utility.
2. Define marginal utility.
3. State the law of diminishing marginal utility.
4. Explain why we cannot use the law of diminishing marginal utility to tell whether an additional dollar of income is worth more to a poor man or a rich man.
5. Explain how the concepts of total utility and marginal utility are used to solve the diamond-water paradox.