rational consumer Flashcards
what do consumers want
they want to maximize utility
what is utility
the satisfaction, happiness and benefit from consuming a good
marginal utility
the additional utility gained from consuming one more good or one less
calculated by dividing total utility by the quantity
principle of diminishing marginal utility
every time you consume one more good the total utility will go down for each additional unit
what is budget
what consumers can afford
what is utility maximization
consumers moving there money to maximize their satisfaction
what is total utility
the net utility from all consumptions made
calculated by adding the additional utility gained to the previous total utility
principle of diminishing marginal utility
for each good you consume total utility decreases for each additional good to a point where the return diminishes
what happens when you reach maximum utility
once you reach maximum utility then the utility for teach good beyond that point starts to go down
consumption possibilities
the budget line shows the limit to the combination of goods or services a consumer can and cannot afford
what causes consumption possibilities to change
ether a change in income or a change in price of the good
optimal consumption bundle
this is the bundle of goods that maximizes the total utility in a given budget constraint
spreed sheet solution
just look at the spreed sheet and the amount that gives the largest total utility
income effect
for most goods income effect is positively related with demand so if income goes up then demand will go up too
income effect inferior goods
when the income goes down then the demand for inferior goods goes up
what is a giffen good
as the price of the good increase more people want the good because it creates a demand from the assumed scarcity of the good. think of supreme
what is average utility
total utility divided by quantity
marginal utility for complementary goods
when the price of a complementary good goes up then the marginal utility for that good goes up too but the marginal utility for the other good goes down
