Chapter 20 Definitions

Question 1

The want-satisfying power of a good or service

Answer 1

Utility

Question 2

The analysis of consumer decision making based on utility maximization

Answer 2

Utility analysis

Question 3

A representative unit by which utility is measured

Answer 3

Util

Question 4

The change in total utility due to a one-unit change in the quantity of a good or service consumed

Answer 4

Marginal Utility = change in total utility / change in number of units consumed

Question 5

The principal 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 and smaller as more is consumed during a given time period

Answer 5

Diminishing Marginal Utility

Question 6

A choice of a set of goods and services that maximizes the level of satisfaction for each consumer, subject to limited income

Answer 6

Consumer optimum

Question 7

The tendency of people to substitute cheaper commodities for more expensive commodities

Answer 7

Substitution effect

Question 8

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

Answer 8

Principle of substitution

Question 9

The value of money for buying goods and services. If your income stays the same but the price of one good that you are buying goes up, your effective _________________ falls

Answer 9

Purchasing power

Question 10

The change in peoples purchasing power that occurs when, other things being constant, the price of one good that they purchase changes. When that price goes up, real income, or purchasing power falls, and when that price goes down, real income increases

Answer 10

Real-income effect