ECO chapter 6
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6 Terms
behavioral economics
branch of economics that seeks to enrich the understanding of decision making by integrating insights of psychology and by investigating how given dollar amounts can mean different things to people depending on the situation
total utility
the satisfaction derived from consumer choices
marginal utility
additional utility provided by 1 additional unit of consumption
diminishing marginal utility
common pattern that each marginal unit of a good consumed provides less of an addition to utility than the previous unit
marginal utility per dollar
additional satisfaction gained from purchasing a good given the price of the product. (MU/price)
consumer equilibrium
point on the budget line where the consumer gets the most satisfaction. it occurs when the ratio of the prices of goods = the ratio of the marginal utilities. (MU1/P1= MU2/P2= MU3/P3)