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utility
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(of a consumer) a measure of the satisfaction 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 consumed adds less to toal utility than did the previous unit.
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budget constraint
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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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optimal consumption rule
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when a consumer maximizes utility, the marginal utility per dollar spend must be the same for all goods and services in the 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 a good that has become relatively cheaper in place of one 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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