Theory of Consumer Choice

Question 1

marginal utility formula

Answer 1

change in total utility /
change in quantity

Question 2

the idea that units of a good, such as dollars, ounces of gold, or barrels of oil are capable of mutual substitution
with each other and carry equal value to the individual.

Answer 2

fungible

Question 3

a higher price means that, in effect, the buying power of income has been reduced, even though actual
income has not changed; always happens simultaneously with a substitution effect

Answer 3

income effect

Question 4

when a price changes, consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price; always happens simultaneously with an income effect

Answer 4

substitution effect