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Economic Terms
Choices by Consumers
10
Economics
Undergraduate 2
10/03/2013

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Term
utility
Definition
the pleasure, satisfaction, or need fulfillment that people obtain from the consumption of goods and services
Term
marginal utility
Definition
the amount of added utility gained from a one-unit increase in consumption of a good, other things being equal
Term
principle of diminishing marginal utility
Definition
the principle that the greater the consumption of some good, the smaller the increase in utility from a one-unit increase in consumption of that good
Term
consumer equilibrium
Definition
a state of affairs in which a consumer cannot increase the total utility gained from a given budget by spending less on one good and more on another
Term
substitution effect
Definition
the part of the increase in quantity demanded of a good whose price has fallen that is caused by substitution of that good for others that are now relatively more costly
Term
income effect
Definition
the part of the change in quantity demanded of a good whose price has fallen that is caused by the increase in real income resulting from the price change
Term
Giffen good
Definition
an inferior good accounting for a large share of a consumer's budget that has a positively sloped demand curve because the income effect of a price change outweighs the substitution effect
Term
consumer surplus
Definition
the difference between the maximum that a consumer would be willing to pay for a unit of a good and the amount that he or she actually pays
Term
producer surplus
Definition
the difference between what producers receive for a unit of a good and the minimum they would be willing to accept
Term
excess burden of the tax
Definition
the part of the economic burden of a tax that takes the form of consumer and producer surplus that is lost because the tax reduces the equilibrium quantity sold
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