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9 Cards in this Set
- Front
- Back
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Consumer |
An individual who makes the decision whether to buy goods or services. |
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Utility |
The amount of benefit or satisfaction derived from the consumption of a good or service. |
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Assumptions Concerning Consumer Behaviour |
* It is assumed that consumers have limited incomes * It is assumed that consumers seek to get max. satisfaction from that income * It is assumed that consumers will act rationally * It is assumed that consumers are subject to the law of diminishing marginal utility |
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Economic Good |
A product or service which commands a price, derives utility, and is transferable. |
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Marginal Utility |
The addition to total utility brought about by the extra utility received caused by the consumption of one extra unit of a good. |
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The Law of Diminishing Marginal Utility |
States that as more units of a good are consumed, a point will be reached where marginal utility eventually begins to decline. |
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Assumptions Underlying the Law of Diminishing Marginal Utility |
* It applies only after a certain minimum ( the origin ) has been consumed * Sufficient time has not elapsed for circumstances to change * It assumes that income doesn't change * It does not apply to addictive goods & medicines |
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Equilibrium |
The condition where there is no tendency to change |
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Equi-marginal Utility Principle |
A consumer must spend their income in such a way that the ratio of marginal utility to price is the same for all commodities which they buy |
