Unit 6- Consumer Choice & Demand

Microeconomics

Total Utility

The total satisfaction a consumer derives from consumption; it could refer to either the total utility from all consumption. 

Marginal Utility

The more a good a person consumes per period, the smaller the increase in total utility from consuming one more unit. 

Consumer Equilibrium

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

Marginal Valuation

The dollar value of the marginal utility derived from consuming each additional unit of a good. 

Consumer Surplus

The difference between the maximum amount that a consumer is willing to pay for a given quantity of a good and what the consumer actually pays.

Indifference Curve

Shows all combinations of goods that provide the consumer with the same satisfaction, or the same utility (the consumer finds all combinations on a curve equally preferred). 

Marginal Rate of Substitution

The number of “A” you are willing to give up to get more of “B” you are willing to give up to get another “A” declines.  

The Law of Diminishing Rate of Substitution

States that as your consumption of “A” increases, the amount of “B” you are willing to give up to get another “A” declines. 

Indifference Map

A graphical representation of a consumers tastes. Each curve reflects a different level of utility. 

Budget Line

Depicts all possible combinations of videos and pizzas, given their prices and your budget.