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15 Cards in this Set
- Front
- Back
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law of demand
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ppl do less of what they want if the P of doing it increases
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utility
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represents satisfaction ppl derive from consumtion of a good
-> utility maximization |
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marginal utility
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additional utility gained from consuming an add. unit of a good
change in U change in consumtion |
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law of deminishing marginal utility (DMU)
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tendency for marginal utility to diminish as consumption inceases beyond some point
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optimal combination of goods
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the affordable combi that yields the highest total utility
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rational spending rule
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spending should be allocated across goods so that the marginal utility/ € is the same for each good
MUa/Pa = MUb/Pb ->income/substitution effect |
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real price
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€P of a good relative to avarage € price of all other goods
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nominal price
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absolute P of a good in € temrs
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ASSUMPTIONS FOR DEMAND
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1)preferences are complete (can choose)
2)preferences dan be cardinally measured 3)preferences are transitive (ABC logic) 4)satisfaction level monotonically increasing 5)preferences continuous (small amounts) -> U functionn |
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diminshing marg.rate of substitution (MRS)
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the less you have of good A the more B u'll have to be given to make up for a further reduction in the Q of A
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budget constraint
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Y= PaA+PbB
all on A -> Y/Pa all on B -> Y/Pb feasible points? below/on line preferred points? right/up the line |
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indifference curve
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smoothly convex curve,
slope= consumer's marg. rate of substitution between two goods As u move along curve you trade units of A for B while U is indifferent -> infinite no. of Indifference curves |
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max. utility with budget at disposal
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rational consumer will choose feasible bundle that is on the highest attainable indifference curve. where budget constraint intersects with indifferent curve!
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horizontal addition
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Q demanded at any price on market D curve = SUM of indiv. Q demanded at that price
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consumer surplus
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difference betw. a buyer's reservation price for a product & price actually paid
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