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utility
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the satisfaction experienced from consuming a good
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util
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one unit of utility
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marginal utility
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the change in total utility from one additional unit of a good
change in total utility over change in quantity
change in total utility over change in quantity
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budget line
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the line connecting the combinations of two goods that exhaust a consumer's budget
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budget set
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the set of affordable combinations of two goods
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equimarginal rule
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pick the combination of two activities where the marginal benefit per dollar for the first activity equals the marginal benefit per dollar for the second activity
if they are equal, you are maximizing your utility
if they are equal, you are maximizing your utility
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substitution effect
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the change in quantity consumed that is caused by a change in the relative price of the good, with real income held constant
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income effect
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the change in quantity consumed that is caused by a change in real income, with relative prices held constant
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as market price decreases, consumer surplus _______ and producer surplus ________.
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increases, decreases
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price controls have been placed on...
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rental housing and gasoline
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under an agricultural price-support program, the government...
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sets a minimum price and then buys any resulting surpluses at that price
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conditions for utility maximization
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1. the marginal utility per dollar on all goods is equal
2. the money spent on all goods adds up to the fixed budget
2. the money spent on all goods adds up to the fixed budget
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