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6 Cards in this Set
- Front
- Back
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Law of Diminishing Marginal Utility |
As each additional unit of a good or service is consumed, total satisfaction (utility) increases at a decreasing rate. That is, extra satisfaction falls with every extra unit consumed. |
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Optimal Purchase Rule |
A rational consumer attempting to maximise his/her total utility will continue to consume one more unit until the point where P=MU. |
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Law of Demand |
As Price increases, Quantity Demanded decreases. Quantity Demanded responds to Price. |
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In order for... |
In order for Alan to consume one more unit of chocolate cake, price must fall by x amount to match the falling Marginal Utility.
In order for a producer to sell one extra unit, they must decrease the price by x amount to match his falling Marginal Utility. |
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Equi-Marginal Rule |
For a consumer to maximise total satisfaction and achieve consumer equilibrium, they must satisfy these conditions: 1. Spend all their income. 2. The Marginal Utility per dollar must be equal.
(MuA/PA) = (MuB/PB) |
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Consumer Equilibrium |
In this situation Consumer Equilibrium is achieved because the Marginal Utility of the last dollar spent on each good or service is equal. |
