Term
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Definition
| The number of units of utility that a consumer gains from consuming a given quantity of a good, service, or activity during a particular time period. |
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Term
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Definition
| The amount by which total utility rises with consumption of an additional unit of a good, service, or activity, all other things unchanged. |
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Term
| Law of Diminishing Marginal Utility |
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Definition
| The tendency of marginal utility to decline beyond some level of consumption during a period. |
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Term
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Definition
| A restriction that total spending cannot exceed the budget available. |
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Term
| Utility-Maximizing Condition |
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Definition
| Utility is maximized when total outlays equal the budget available and when the ratios of marginal utilities to prices are equal for all goods and services. |
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Term
| Income-Compensated Price Change |
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Definition
| An imaginary exercise in which we assume that when the price of a good or service changes, the consumer’s income is adjusted so that he or she has just enough to purchase the original combination of goods and services at the new set of prices. |
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Term
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Definition
| The change in a consumer’s consumption of a good in response to an income-compensated price change. |
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Term
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Definition
| The change in consumption of a good resulting from the implicit change in income because of a price change. |
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Term
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Definition
| Graphically shows the combinations of two goods a consumer can buy with a given budget. |
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Term
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Definition
| Graph that shows combinations of two goods that yield equal levels of utility. |
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Term
| Marginal Rate of Substitution (MRS) |
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Definition
| The maximum amount of one good a consumer would be willing to give up in order to obtain an additional unit of another. |
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