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20 Cards in this Set
- Front
- Back
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Utility |
Denotes satisfaction Subjective pleasure or usefulness that a person derives from consuming a good or service |
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Marginal Utility |
Additional or extra utility gained from consuming another unit of a good |
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Law of diminishing marginal utility |
The amout of marginal utility declines as a person consumes more and more units of a good |
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Total utility |
Sum of all the utilities of consumed units of a good |
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Equimarginal pronciple |
A consumer will achieve maximum satisfaction when the marginal utility of the last dollar spent on a good is exactly the same as the marginal utility on the last dollar spent on amy other good |
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Ordinal utility |
Consumers need to determine only their preference ranking of bundles of commodities |
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Substitution Effect |
When the price of a good rises, consumers will tend to substitute other goods for the more expensive goods in order to satisfy their desires more inexpensively |
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Real income |
The actual quantity of goods that your money income can buy |
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Income effect |
Thr change in quantity demanded that arises because a price change lowers real income |
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Income elasticity |
% change in qty. Demanded ÷ % change in income |
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Individual demand |
Demand of a single comsumer In demand curve, denoted with lowercase letters |
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Market demand |
Demand of all consumers in a perticular market Denoted by capital letters in demand curve |
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Substitutes |
An increase in price of good A will lead to an increase in demand of good B Ex. Beef & chicken |
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Complements |
An increase in price of good A will lead to a decrease in demand of good B Ex. Cars and gas |
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Independent goods |
An increase in price of good A will not affect the demand of good B Ex. Salt and books |
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Price Elasticities |
HIGH -Goods with ready substitutes LOW - goods with little to no substitutes |
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Income elasticities |
HIGH - luxury goods PROPORTIONAL GROWTH - staple commodities NEGATIVE - inferior goods (demand falls as income rises) |
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Merit goods |
Goods whose consumption is thought intrinsically worthwile Ex. Free public education |
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Demerit goods |
Goods whose consumption is deemed harmful Ex. Goods involving addictions like alcohol or cigarettes |
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Consumer surplus |
The gap betweem the total utility of a goodand its total market value Result of law of diminishing marginal utility |
