AP Econ Module 51 and 52 and 53 Vocabulary

utility

a measure of personal satisfaction

util

a unit of utility

marginal utility

the change in total utility generated by consuming one additional unit of that good or service

marginal utility curve

shows how marginal utility depends on the quantity of a good or service consumed.

principle of diminishing marginal utility

the idea that each successive unit of a good or service consumed adds less to total utility than does the previous unit.

budget constraint

limits the cost of a consumer's consumption bundle to no more than the consumer's income

consumption possibilities

the set of all consumption bundles that are affordable, given a consumer's income and prevailing prices.

budget line

shows the consumption bundles available to a consumer who spends all of his or her income.

optimal consumption bundle

the consumption bundle that maximizes the consumer's total utility given his or her budget constraint.

marginal utility per dollar

the additional utility from spending one more dollar on a good or service.

optimal consumption rule

says that in order to maximize utility, a consumer must equate the marginal utility per dollar spent on each good and service in the consumption bundle.

explicit cost

a cost that involves actually laying out money.

implicit cost

a cost that does not require an outlay of money; it is measured by the value, in dollar terms, of benefits that are foregone.

accounting profit

the business's total revenue minus the explicit cost and depreciation.

economic profit

a business's total revenue minus the opportunity cost of its resources; usually less than the accounting profit.

implicit cost of capital

the opportunity cost of the capital used by a business—the income the owner could have realized from that capital if it had been used in its next best alternative way.

normal profit

an economic profit equal to zero; an economic profit just high enough to keep a firm engaged in its current activity.

principle of marginal analysis

says that every activity should continue until marginal benefit equals marginal cost.

marginal revenue

the change in total revenue generated by an additional unit of output.

optimal output rule

says that profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost.

marginal cost curve

shows how the cost of producing one more unit depends on the quantity that has already been produced.

marginal revenue curve

shows how marginal revenue varies as output varies.