Chap 10

Chap 10 - 3. Total utility: Total amount of satisfaction...

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Chapter 10 Consumer choice theory 10.1 1. The downward-sloping demand curve has three other explanations: The income and substitution effects of a price change; Substitution effect: A consumer switch to another similar good when the price of the preferred good increase; Income effect: Reduction in quantity demand of a good when its price increase because of a consumer’s decreased purchasing power; The law of diminishing marginal utility; Diminishing marginal utility: A goods’ ability to provide less satisfaction with each successive unit consumed; An interpretation using difference curves and budget lines; 2. Utility: A measure of the relative levels of satisfaction consumers get from consumption of good and service; Util: One unit of satisfaction; Utility is a personal matter;
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Unformatted text preview: 3. Total utility: Total amount of satisfaction derived from the consumption of a certain number of goods and service; Marginal utility: Extra satisfaction generated by consumption of an additional good or service during a specific time period; The increase in total utility from each additional unit is less than the unit before, which indicates the marginal utility; Diminishing marginal utility: An individual consumers more and more of a good, each successive unit generate less and less utility; 10.2 1. Consumer equilibrium: Allocation of consumer income that balance the ratio of marginal utility to the price of goods purchase; MU /P =MU /P =MU /P =MU/P...
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This note was uploaded on 02/10/2011 for the course ECO 2251 taught by Professor Kirkland during the Spring '09 term at Troy.

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