Consumer Utility and Decision Making

These flashcards cover key concepts related to consumer utility, decision-making, and economic theories as discussed in the lectures.

Utility

The satisfaction or well-being that a consumer receives from consuming a good or service.

Total Utility

Overall happiness derived from consumption; generally, consumers prefer more to less.

Marginal Utility (MU)

The change in total utility from consuming an additional unit of a good.

The Law of Diminishing Marginal Utility

As more units of a good are consumed, the additional satisfaction gained from each additional unit decreases.

Budget Constraint

The limit of a household's consumption based on its income and the prices of goods and services.

Indifference Curve

A graph representing different combinations of two goods that provide the same level of utility to the consumer.

Marginal Rate of Substitution (MRS)

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

Perfect Substitutes

Two goods for which a consumer is willing to substitute one for the other at a constant rate.

Perfect Complements

Two goods that a consumer consumes in fixed proportions.

Consumer Optimum

The point at which a consumer achieves the highest level of utility given their budget constraint.

Utility Per Dollar Spent

A measure used to determine how much utility is gained from spending one dollar on a good.

Real-Income Effect

The change in purchasing power that occurs when the price of a good changes.

Substitution Effect

The change in consumption patterns due to a change in the relative price of goods.