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chapter 7 - consumer equilibrium has been reached People...

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Chapter 7 Marginal - one additional unit You can get total quantity by adding the marginal quantities Graphically, the marginal quantity is the slope of the total quantity The economic theory of consumer behavior starts from the idea that consumers are rational , which means that they do the best they can with what they have. Economists developed a concept called utility , to describe the psychological satisfaction that consumers get from consuming goods and services. Law of diminishing marginal utility - for virtually every consumer good, the amount of additional utility provided by consuming one additional unit of the good will eventually go down, as the consumer increases his level of consumption Consumer decision rule - for the case in which marginal utility is measured in dollars: Consumers should continue to buy products as long as marginal utility will be equal to price. When the consumer buys the quantity at which marginal utility equals price, we say that
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Unformatted text preview: consumer equilibrium has been reached. People should engage in economic activities until marginal benefit equals marginal cost Consumer surplus- the number of dollars by which total willingness to pay exceeds the total amount actually paid. Graphically, consumer surplus is the area between the demand curve and the horizontal line that represents price. The utility-maximizing consumer will be in equilibrium when he spends all of the available money and chooses the combination of goods that give the same marginal utility per dollar spent, for every good. Diamond-Water Paradox- why diamonds could be sold for prices that were so much higher than the price of water, even though we need water to live. Water has a small marginal utility and diamonds have a great marginal value....
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