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9 Cards in this Set
- Front
- Back
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Diminishing Marginal Utility |
The utility that any consumer derives from successive units of a product over time diminishes. |
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A utility-maximizing consumer... |
Allocates expenditures so that the marginal utility obtained from the last dollar spent on each product is equal. |
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Real Income |
Income expressed in terms of purchasing power-quantity of G & S that can be purchased with the money income. |
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Substitution effect |
Leads consumers to increase purchases of the product whose relative price has fallen (holding real M constant). |
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Income effect |
The reaction of the consumer to the change in purchasing power (real M) that is caused by the price change, holding relative prices constant @ new level |
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Slope of Demand Curves |
The Demand Curve for any Normal good is negatively slopped. As the price falls, consumers increase purchases to restore the ratio of the product's marginal utility to its now lower price and therefor be at the same level as other products. |
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Consumer Surplus |
Difference between what you are willing to pay (value) and what you actually pay. |
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Total value & Marginal Value |
Total Value: Is total area under demand curve (value placed on all units consumed) Marginal Value: Additional value attached to subsequent units. |
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Because the market price of a product depends on... |
Both demand and supply, a product may have a high total value (water) and low marginal value. |
