Consumer Equilibrium, Market Demand, and Consumer Surplus

Flashcards covering key concepts from Chapter 4, including consumer equilibrium, demand theory, and consumer surplus.

Consumer Equilibrium

The point where consumer utility is maximized subject to their budget constraint, meaning preferences align with affordability.

Indifference Curve

A curve that represents consumer preferences, showing combinations of goods that yield the same level of utility or satisfaction.

Budget Line

A line that represents affordability, showing all possible combinations of two goods a consumer can purchase given their income and the prices of the goods.

Law of Demand

States that, all else being equal, as the price of a good increases, the quantity demanded will decrease, and vice versa.

Engel Curve

A curve that shows how the quantity demanded of a particular good or service changes as a consumer's income changes, holding all other factors constant.

Normal Good

A type of good for which demand increases as consumer income increases.

Inferior Good

A type of good for which demand decreases as consumer income increases.

Marginal Utility

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

Price-consumption curve

A curve that traces the utility-maximizing combinations of two goods as the price of one good changes, forming the basis of a consumer's demand schedule.

Demand Schedule

A table that shows the quantity of a good consumers are willing and able to purchase at various prices during a specific period.

Law of Diminishing Marginal Utility

States that as an individual consumes more units of a good, the additional satisfaction (marginal utility) derived from each successive unit tends to decrease.

Market Demand Curve

Derived from the horizontal summation of the individual demand schedules or curves for all consumers in a given market.

Change in Quantity Demanded

A movement along a stationary demand curve, caused solely by a change in the product's own price.

Change in Demand

A shift of the entire demand curve, caused by changes in factors other than the product's own price, such as income, other prices, or tastes.

Consumer Surplus

The difference between the maximum price consumers are willing to pay for a product and the actual market price they pay, representing the economic benefit to consumers.

Factors Affecting Demand (Other than Price)

Determinants that can shift the demand curve, including advertising and promotion, attitudes toward nutrition or health, composition of the population, food safety, lifestyles, and technological forces.