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utility
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of a consumer, a measure of the satisfaction or happiness derived from consumption of goods and services
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consumption bundle
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of an individual, the collection of all the goods and services consumed by a given individual
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utility function
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of an individual, the total utility generated by an individual's consumption bundle
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util
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a unit of utility
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marginal utility
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the change in total utility generated by consuming one additional unit of a good or service
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marginal utility curve
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a graphical representation showing how marginal utility depends on the quantity of the good or service consumed
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principle of diminishing marginal utility
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the proposition that each successive unit of a good or service ocnsuemd adds less to total utility than did the previous unit
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budget constraint
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the limitation that the cost of a consumer's consumption bundle cannot exceed the consumer's income
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consumption possibilities
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the set of all consumption bundles that can be consumed given a consumer's income and prevailing prices
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budget line
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all the consumption bundles available to a consumer who spends all of his or her income
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optimal consumption bundle
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the consumption bundle that maximizes a consumer's total utility given that consumer's budget constraint
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marginal utility per dollar
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the additional utility gained from spending one more dollar on a good or service
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utility-maximizing principle of marginal analysis
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the principle that the marginal utility per dollar spent must be the same for all goods and services in the optimal consumption bundle
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substitution effect
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the change in the quantity of a good consumed as the consumer substitutes other goods that are now relatively cheaper in place of the good that has become relatively more expensive
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income effect
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the change in the quantity of a good consumed that results from the change in a consumer's purchasing power due to the change in the price of the good
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Giffen good
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the hypothetical inferior good for which the income effect outweighs the substitution effect and the demand curve slopes upward
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