Consumer Choice and Demand Flashcards

These flashcards cover key vocabulary terms and concepts from the lecture notes on consumer choice and demand, serving as a study tool for exam preparation.

Consumer Demand

The desire and willingness of consumers to purchase goods and services.

Utility

The satisfaction or pleasure that a consumer derives from consuming a good or service.

Substitution Effect

The change in quantity demanded of a good as a result of a change in its price, making it more or less attractive compared to substitutes.

Income Effect

The change in quantity demanded of a good resulting from a change in a consumer's real income due to a price change.

Law of Demand

The principle that, all else being equal, as the price of a good decreases, the quantity demanded increases, and vice versa.

Diminishing Marginal Utility

The decrease in additional satisfaction obtained from consuming an additional unit of a good.

Total Utility

The total satisfaction received from consuming a certain quantity of goods.

Marginal Utility

The additional satisfaction obtained from consuming one more unit of a good.

Consumer Surplus

The difference between the total amount that consumers are willing to pay for a good and the total amount they actually pay.

Utility-Maximizing Condition

Consumers will allocate their income so that the last dollar spent on each good provides the same marginal utility.

Equilibrium in Consumption

The point where a consumer maximizes their utility given their budget constraints.

Taste and Preferences

Individual likes and dislikes that influence consumer demand for goods and services.

Time Price of Goods

The value of the time spent in acquiring goods, which can influence demand.

Market Demand Curve

The sum of individual demand curves for a specific good in the market.

Consumer Behavior

The study of how individuals make decisions to allocate their resources.

Normal Goods

Goods for which demand increases as consumer income rises.

Inferior Goods

Goods for which demand decreases as consumer income rises.

Elasticity of Demand

How responsive the quantity demanded is to a change in price.

Marginal Rate of Substitution (MRS)

The rate at which a consumer is willing to give up one good for another while maintaining the same level of utility.

Indifference Curves

Graphs that represent combinations of goods that give the consumer the same level of satisfaction.

Indifference Map

A diagram that shows a consumer's preference among different combinations of two goods.

Budget Line

A graphical representation of all possible combinations of two goods that a consumer can buy with their income.

Opportunity Cost

The loss of potential gain when one alternative is chosen over another.

Marginal Valuation

The price that reflects the consumer's willingness to pay for an additional unit of a good.

Consumer Equilibrium

The state where a consumer's budget is fully spent and the last dollar spent yields the same marginal utility across all goods.

Price Elasticity of Demand

A measure that shows how the quantity demanded of a good is affected by a change in its price.

Economic Welfare

The overall economic well-being of individuals in terms of their income, consumption, and satisfaction.

Veblen Goods

Luxury goods for which demand increases as their price increases due to their status symbol.

Giffen Goods

A type of inferior good for which demand increases when its price increases, violating the law of demand.

Exhibit 1 Utility Derived From Drinking Water

A demonstration of how total and marginal utility can be measured through consumption.

Diminishing Returns

A principle stating that as one input increases while others are kept constant, the output increases at a decreasing rate.

Price Flexibility

The ability of prices to adjust to shifts in demand or supply.

All-You-Can-Eat Specials

Promotions by restaurants that leverage the law of diminishing marginal utility to maximize profits.

Curb Cabinet Fever

The decrease in enjoyment derived from repeated, familiar consumption due to a lack of novelty.

Consumer Satisfaction Index

A subjective rating scale or method used to evaluate consumer preferences and satisfaction levels.

Economists' Assumptions about Tastes

The belief that consumer tastes are relatively stable and can be analyzed for predictive purposes.

Behavioral Economics

A field that combines economics and psychology to study how people make economic decisions.

Preference Ordering

The ranking of different goods based on individual consumer preferences.

Utility Analysis

The study of how consumers maximize their satisfaction based on their consumption choices.

Market Structures

The organizational and competitive characteristics of a market, influencing demand and pricing.

Consumer Rights

Legal entitlements that protect consumers in transactions and service offerings.

Free-Market Economy

An economic system where prices are determined by unrestricted competition between privately owned businesses.

Rational Choice Theory

The theory that individuals use rational calculations to make rational choices in economic exchange.

Utility Maximization Process

The method through which consumers evaluate and purchase goods to achieve the highest satisfaction with their budget.

Behavioral Game Theory

The study of how psychological factors influence strategic decision-making among consumers.

Marginal Analysis

A technique used to examine the benefits of an additional unit of consumption versus its costs.

Pecking Order

A common hierarchy among consumer goods that affects purchasing decisions.