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15 Cards in this Set
- Front
- Back
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utility
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a numerical indication of a person's preferences in which higher levels of utility indicate a greater preference
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marginal utility
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the increase in utility when consumption of a good increases by one unit
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diminishing marginal utility
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the tendency for a consumer to derive less additional benefit from adding the consumption of a good as consumption of that good increases
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budget constraint
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an income limitation on a person's expenditure on goods & services
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utility maximization
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an assumption that people try to achieve the highest level of utility given their budget constraint
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income effect
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the amount by which the quantity demanded falls because of the decline in real income from a price increase
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substitution effect
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the amount by which quantity demanded falls when the price rises, exclusive of the income effect
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marginal benefit
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the increase in the benefit from, or the willingness to pay for, one more unit of a good
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individual demand curve
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a curve showing the relationship between quantity demanded of a good by an individual and the price of the good
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market demand curve
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the horizontal summations of all the individual demand curves for a good; also simply called the demand curve
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consumer surplus
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the difference between what a person is willing to pay for an additional unit of a good - the marginal benefit - plus the market price of the good. for a whole market, it is the sum of all the individual consumer surpluses, or the area below the market demand curve and above market price.
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budget line
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line showing the maximum combination of 2 goods that it is possible to buy, given a budget constraint and the market price of the 2 goods
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indifference curve
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a curve showing the combinations of 2 goods that leave the consumer with the same level of utility
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marginal rate of substitution
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the amount of one good for which the consumer is willing to trade one unit of another good and still have the same utility
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tangency point
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the only point in common for 2 curves; point where the two just touch
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