Microeconomics: Consumer Behavior

Flashcards covering key concepts related to consumer behavior in microeconomics.

Consumer Behavior

Description of how consumers allocate incomes among different goods and services to maximize their well-being.

Marginal Utility

Additional satisfaction obtained from consuming one additional unit of a good.

Labor Theory of Value

A theory that argues that the economic value of a good is determined by the total amount of socially necessary labor required to produce it.

Subjective Theory of Value

A theory which states that the value of a good is determined by the importance an individual places on it for achieving desired ends.

Indifference Curve

Curve representing all combinations of market baskets that provide a consumer with the same level of satisfaction.

Budget Line

All combinations of goods for which the total amount of money spent is equal to income.

Revealed Preference

A concept where if an individual chooses one market basket over another, the chosen basket is preferred.

Marginal Rate of Substitution (MRS)

The maximum amount of a good that a consumer is willing to give up in order to obtain one additional unit of another good.

Perfect Substitutes

Two goods for which the marginal rate of substitution of one for the other is constant.

Perfect Complements

Two goods for which the marginal rate of substitution is zero or infinite; the indifference curves are shaped as right angles.

Utility Function

Formula that assigns a level of utility to individual market baskets.

Ordinal Utility

Utility function that generates a ranking of market baskets in order of most to least preferred.

Cardinal Utility

Utility function that describes how much one market basket is preferred over another.