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11 Cards in this Set

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Diamond-water paradox
the observation that those things that have the greatest value in use sometimes have little value in exchange and those things that have little value in use sometimes have the greatest value in exchange
Utility
a measure of the satisfaction, happiness or benefit that results from the consumption of a good
Util
an artificial construct used to measure utility
Total utility
the total satisfaction a person recieves from consuming a particular quantity of a good
Marginal utility
the additional utility a person recieves from consuming an additional unit of a particular good
Law of diminishing marginal utility
for a given time period, the marginal (additional) utility or satisfaction gained by consuming equal successive units of a good wil decline as the amount consumed increases
Interperseonal utility comparison
comparing the utility one person receives froom a good, service or activity with the utility another person receives from the same good, service or activity
Consumer equilibrium
occurs when a person has spent all income and the marginal utilities per dollar spent on each good purchased are equal
MUa/Pa = MUb/Pb = ... MUz/Pz where the letters a-z represent all the goods a person buys
Real income
income adjusted for price changes. a person has more (less) real income as the price of a good falls (rises), ceteris paribus
Substitution effect
the portion of the change in the quantity demanded of a good that is attributal to a change in its relative price
Income effect
the portion of the change in the quantity demanded of a good that is attributal to a change in real income (brought about by a change in absolute price)