Marginal Utility
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10 Terms
Income effect
Decrease price of a good saves more money therefore more buying power therefore more income
Substitution effect
If two goods are substitutes and one is cheaper, will switch to the cheaper goods so that we have more money left over to buy more stuff
The law of diminishing marginal utility
The added satisfaction declines as you acquire additional units of a good
Utility
The level of happiness or satisfaction you get from consuming a good
Utils
Imaginary measurement of utility
Total utility (TU)
The total amount of happiness or satisfaction you get from consuming a good
Marginal utility
The extra satisfaction that you get from an additional unit of a good
What is the equation for calculating marginal utility?
MU = change in total utility divided by change in quantity
The utility maximizing rule
Use when you want to find maximum utility and you have two goods
What is the utility maximizing equation?
(MU of A/P of A) = (MU of B/P of B)
Note 
Flashcards (21)