ECON - 7: Consumer Choice and Demand

Vocabulary flashcards covering the fundamental concepts of consumer choice and demand, including utility analysis, income effects, and consumer equilibrium.

Utility

The degree or sense of satisfaction, contentment, delight, or well-being that comes from the consumption of goods and services.

Utility Analysis

One way economist measure human welfare

Tastes and Preferences

The source of utility derived from a particular good, service, or activity, defined by an individual's likes and dislikes in consumption.

Total Utility

The total satisfaction derived from consumption, which can refer to either the total utility of consuming a particular good or the total utility from all consumption.

Marginal Utility

The change in total utility resulting from a one-unit change in the consumption of a good.

Law of Diminishing Marginal Utility

The economic principle stating that the more of a good a person consumes per period, the smaller the increase in total utility from consuming one more unit, other things constant.

Substitution and Income Effect

The consumer behavior where, when the price of a good falls and becomes cheaper compared to other goods, consumers tend to substitute that good for other goods.

Money Income

The number of dollars or pesos a person receives per period, expressed as $/₱ per week.

Real Income

Income measured by the goods and services it can buy; it charges when the price changes by what it can buy.

Income Effect of a Price Change

A fall in the price of a good that increases a consumer’s real income, making them more able to purchase goods; for a normal good, the quantity demanded increases.

Role of Time in Demand

The concept that goods have both a money price and a time price, and consumers are willing to pay more for time-saving goods depending on the opportunity cost of their time.

Consumer Equilibrium

The condition in which an individual consumer’s budget is exhausted and the last dollar spent on each good yields the same marginal utility, resulting in maximized utility.