Chapter 5 - Demand

Consumer surplus

________: difference between a buyers reservation price for a product and the price actually paid.

Horizontal addition

________: process of adding individual demand curves to get the market demand curve.

Law of demand

people do less of what they want to do as the cost of doing it rises

Marginal utility

additional utility gained from consuming an additional unit of a good

Law of diminishing marginal utility

tendency for the additional utility gained from consuming an additional unit of a good to diminish as consumption increases beyond some point

Rational spending rule

spending should be allocated across goods so that the marginal utility per dollar is the same for each good

Horizontal addition

process of adding individual demand curves to get the market demand curve

Consumer surplus

difference between a buyers reservation price for a product and the price actually paid