Theory of Consumer Behavior

These flashcards focus on key vocabulary and concepts from the Theory of Consumer Behavior, aiding in understanding and memorization for exam preparation.

Utility

The satisfaction or pleasure derived from the consumption of a good or service.

Marginal Utility (MU)

The extra satisfaction realized from an additional unit of a product.

Diminishing Marginal Utility (DMU)

The principle that as the quantity consumed increases, the additional satisfaction gained from consuming more units decreases.

Cardinal Utility Theory

The theory that suggests utility can be measured using arbitrary units called 'utils'.

Ordinal Utility Theory

The theory that suggests utility cannot be measured in absolute terms but can be ranked or ordered.

Indifference Curve

A graph showing different combinations of goods that give the consumer the same level of satisfaction.

Consumer Equilibrium

The point where a consumer maximizes total utility given their budget constraint.

Marginal Rate of Substitution (MRS)

The rate at which a consumer is willing to give up one good for another while maintaining the same level of utility.

Total Utility (TU)

The total satisfaction a consumer derives from consuming a certain quantity of goods.

Budget Line

A graph that shows the various combinations of two goods a consumer can purchase with a fixed income.

Transitivity of Preferences

The property that if a consumer prefers A to B and B to C, then they also prefer A to C.

Completeness and Likability

The assumption that consumers can rank their preferences for different bundles of goods.

Free Disposal

The assumption that more goods do not make a consumer worse off.

Utility Maximization

The process by which consumers allocate their budget to maximize satisfaction.

Law of Demand

Principle stating that consumers will buy less of a good when its price increases, shifting to cheaper substitutes.