ECN CHAPTER 10

These flashcards cover key terminology and concepts related to consumer choice and behavior in microeconomics.

Utility

A measure of satisfaction or pleasure that a consumer derives from the consumption of goods and services.

Consumption bundle

The collection of all the goods and services consumed by an individual.

Utility function

A mathematical representation of an individual's preferences, showing the total utility generated from consumption.

Util

The unit of measurement for utility.

Marginal utility

The additional satisfaction or utility gained from consuming one more unit of a good or service.

Marginal utility curve

A graph that shows how marginal utility changes as the quantity of a good consumed changes.

Principle of diminishing marginal utility

The principle stating that as a consumer consumes more units of a good, each additional unit provides less additional utility.

Budget constraint

A limit on the consumption bundles that a consumer can afford based on their income and the prices of goods.

Consumption possibilities

The various combinations of goods and services that a consumer can purchase given their budget constraint.

Budget line

A graphical depiction of all affordable consumption bundles that a consumer can purchase if they spend all of their income.

Optimal consumption bundle

The combination of goods that maximizes a consumer's total utility while staying within their budget constraint.

Marginal utility per dollar

The additional utility gained from spending one more dollar on a good or service.

Optimal consumption rule

The rule that states that at the optimal consumption bundle, the marginal utility per dollar spent on each good is equal.

Substitution effect

The change in the quantity consumed of a good due to a change in its price, leading consumers to substitute away from more expensive goods.

Income effect

The change in the quantity consumed of a good due to a change in the consumer's purchasing power following a price change.

Giffen good

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