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Microeconomics
chapter 10
16
Economics
Undergraduate 2
07/19/2010

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Term
substitution effect
Definition
-the lower price encourages the consumer to buy larger quantities of this good.
-lower prices means higher quantities demanded (and vice versa)
Term
income effect
Definition
is the reduction in QD of a good when its P increases b/c of a consumer's decreased purchasing power
Term
diminishing marginal utility
Definition
is a good's ability to provide less satisfaction with each successive unit consumed
Term
utility
Definition
is a measure of the relative levels of satisfaction that consumers get from the consumption of goods and services
Term
util
Definition
on unit of satisfaction, like a rating system, 1 star (1 util), 2 stars (2 utils) and so on.
Term
Total utility
Definition
total amount of satisfaction derived from the consumption of a certain number of units of a good or service
Term
total utility increases with
Definition
additional consumption
Term
margin
Definition
extra increment, additional unit
Term
marginal utility
Definition
average amount of satisfaction gained from consuming a product
Term
marginal utility tends to decline as...
Definition
consumption increases
Term
law of diminishing marginal utility
Definition
each successive unit of a good that is consumed generates less additional satisfaction that did the previous unit
Term
in a state of consumer equilibrium...
Definition
each good provides the consumer with the same level of marginal utility per dollar spent
Term
when goods are complements...
Definition
the use of more units of one encourages the desire/need of additional units of the other
Term
when goods are substitutes...
Definition
the more you have of one, the less you desire the other
Term
consumer equilibrium formula
Definition
MU1/P1=MU2/P2
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