Microeconomics textbook terms

Consumer Surplus

the difference between the price consumers would be willing to pay for a good (as measured by the height of their

demand curves) and the price they actually have to pay.

Producer Surplus

the difference between the price producers actually receive for their goods and the cost of producing them (measured by the height of the supply curve).

Price Ceiling

the highest price that can be paid legally for a good or service.

Price Floor

price regulation that sets the lowest

price that can be paid legally for a good or service.

Quota

a regulation that sets the quantity of a good or service provided

consumption bundle

any set of goods or services a consumer considers purchasing.

Utility

measure of how satisfied a consumer is.

Utility function

Mathematically describes the relationship between what consumers actually consume and their level of wellbeing

Marginal Utility

extra utility a consumer receives from a 1- unit increase in consumption

welfare economics

the area of economics concerned with the economic well-being of society as a whole

Indifferent

The special case in which a consumer derives the same level of utility from each of two or more consumer bundles

indifferent curve

The combination of all the different bundles of goods that give a consumer the same utility

Marginal Rate of Substitution

The rate at which a consumer is willing to trade off one good (the good on the horizontal axis, X) for another (the good on the vertical axis, 1) and still be left equally well-off

Perfect Substitutes

goods that a consumer can trade for another good, in fixed units, and receive the same level of utility.

Perfect complement

goods from which the consumer receives utility dependent on its being used in a fixed proportion with another good.

Budget constraint

a curve that describes the entire set of consumption bundles a consumer can purchase by spending all income

Feasible Bundle

Any combination of goods on or below the budget constraint that the consumer has the income to purchase

Infeasible Bundle

Any combination of goods above or to the right of the budget line that the consumer cannot afford to purchase

Corner Solution

A utility-maximizing bundle located at the “corner” of the budget constraint where the consumer purchases only one of two goods 

Interior Solution

 utility-maximizing bundle that contains positive quantities of both goods