chapter 8: consumer choice

utility

the satisfaction or happiness received from the consumption of goods and services

total utility

the total satisfaction or happiness received from the consumption of a good, service, or combination of goods and services

marginal utility

the additional satisfaction or happiness received from the consumption of an additional unit of a good or service

util

a subjective measure of the utility associated with consuming a good or service

law of diminishing marginal utility

a principle in economics that states that the marginal utility associated with the consumption of a good or service becomes smaller with each extra unit that is consumed in a given time period

utility maximization

the process of obtaining the greatest level of overall satisfaction or happiness from consuming goods and services, subject to consumers’ preferences, incomes, and prices

equal marginal principle

the idea that consumers maximize their utility when they allocate their limited incomes so that the marginal utility per dollar spent on each of their final choices in a bundle is equal

budget line

a line showing the different combinations of two products that can be purchased with a given budget and at a known set of prices

indifference curve

a curve that shows the combinations of two products that generate the same amount of total utility or satisfaction

transitivity

implies that if a consumer prefers combination x to combination y, and combination y to combination z, then the consumer has to prefer combination x to combination z.