The analysis of consumer decision making based on utility maximization.
A representative unit by which utility is measured.
The change in total utility due to a one-unit change in the quantity of a good or service consumed.
Diminishing Marginal Utility
The principle that as more of any good or service is consumed, its extra benefit declines. Otherwise stated, increases in total utility from the consumption of a good or service become smaller & smaller as more is consumed during a given time period.
A choice of a set of goods and services that maximizes the level of satisfaction for each consumer, subject to limited income.
Equal Marginal Principle*
A consumer's money income should be allocated so that the last dollar spent on each good purchased yields the same amount of marginal utility (when all income is spent), because this rule yields the largest possible total utility.
The tendency of people to substitute cheaper commodities for more expensive commodities.
Principle of Substitution
The principle that consumers shift away from goods and services that become priced relatively higher in favor of goods and services that are now priced relatively lower.
The value of money for buying goods and services. If your money income stays the same but the price of one good that you are buying goes up, your effective purchasing power falls, and vice versa.
The ∆ in people's purchasing power that occurs when, other things being constant, the price of one good that they purchase changes. When that price goes ↑, real income, or purchasing power, ↓, & when that price goes ↓, real income ↑.
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