Ch. 10/11 Microeconomics Rational Consumer/ Consumer Preferences

Measure of satisfaction

Connection: The total utility of Marc buying 3 hotdogs and 5 hamburgers is 10 utils

Determines level of total utility from one's consumption bundle

Goods or services that are consumed by an individual

Connection: Listra's CB is 3 cookies and 2 glasses of milk

Hypothetical units used to measure utility

Connection: The total utility of Marc buying 3 hotdogs and 5 hamburgers is 10 utils

additional utility generated from acquiring one more unit of a product

Connection: The marginal utility of Bob seeing 1 baseball game is 10

Consumption of another unit of a good or service yields less additional utility than the previous unit

Connection: After Jamie goes to 5 swim meets, her marginal utility is 7 but after her 6th, it's 3

Downward sloping curve that represents marginal utility of a good

limits consumer's spending to no more than their income

Connection: Tom likes pasta and meatballs, but when at the store, he cant purchase enough goods to exceed his income

set of all affordable consumption bundles

Connection: Maggie has $10 to spend on cookies and glasses of milk, both priced at $1. She can have any combination of the two as long as it fits within her budget constraint

slope of which is equal to the opportunity cost of the good in the horizontal axis in terms of the good on the vertical

An individual chooses the consumption bundle that maximizes total utility

Marginal utility of a good or service divided by its price

shows how an individual consumer's QD depends on price

change in the quantity consumed if a good as the consumer substitutes said good with what has become relatively cheaper in place of what has become more expensive

Connection: Craig sees peanut butter and Nutella as perfect substitutes. Because the price of peanut butter increases, he consumes more Nutella

A change in the quantity consumed of a product that results from the change in income (purchasing power) caused by a change in the product's price.

Connection: Devon enjoys going to the movies, but she has recently been laid off from work and now goes less frequently

Series or indifference curves

shows all the consumption bundes that yiled a certain level of totoal utility

Never cross, Convex, downward sloping, Total utility constant

Rate at which a consumer is willing to substitute good x for y

MUx/MUy=Change in Q of y/Change in Q of x

goods for which a consumer requires additional units of some other food as compensation for giving up some of the good

Connection: Johns OCB was 10 loaves of breads and 8 sticks of butter, but the price of butter has risen so now his OCB is 12 loaves of bread and 5 sticks of butter

the more of good x a person consumes in proportion to good y, the less y they're are willing to substitute in place of x

Connection: If Joshua has 13 bananas and 5 apples, he'll likely give up more bananas than apples

consumer chooses the bundle at which the indifference curve just touches the budget line

The price of a specific good or service in comparison to the prices of other goods and services.

at the optimal consumption bundle, the relative price is equal to the marginal rate of substitution

when marginal rate of sub is constant for two goods; indifference curves are straight lines

When a consumer wants to consumer two goods in the same ratio