Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Chapter 10
Microeconomics
| Question | Answer |
|---|---|
| Utility | value or satisfaction from consumer consumption |
| Marginal Utility (MU) | the change in utility from consuming an additional unit |
| Diminishing marginal utility | each additional unit of a good adds less to utility than the precious unit |
| 3 main assumptions of rational consumers | 1. All goods provide utility 2. There is no saving 3. Marginal utility diminishes over......... (diminishing marginal utility) |
| Assume that the marginal utilities for the first 3 units of a good consumed are 200, 150, and 125, respectively. The total utility when two units are consumed is: | 350 |
| Optimal consumption bundle | the one that maximizes a consumer's total utility given his or her budget constraint |
| Budget constraint | shows all of the consumption bundles that a consumer can afford given his or her income and the prices |
| The substitution effect (of a change in the price of a good) | the change in the quantity consumed of that good as the consumer substitutes the good that has become relatively cheaper for the good that has become relatively more expensive |
| The income effect (of a change in the price of a good) | change in the quantity consumed of a good that results from a change in the consumer's purchasing power due to the change in the price of the good |
| Normal goods | increase in price causes consumers' purchasing power to drop and reduces consumption ( and vice versa) income effect is negative |
| Inferior goods | increase in price causes consumers' purchasing power to drop and increases consumption (and vice versa) income effect is positive |
| Giffen good | hypothetical inferior good for which the income effect outweighs the substitution effect and the demand curve slopes upward |
Created by:
kthomas96
Popular Economics sets