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Chapter 8

Economics Chapter 8 utility and demand.docx

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ECON 1050
Eveline Adomait

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Economics Chapter 8 – Utility and Demand Consumption choices: choices you make as a buyer of goods and services -summarized under two headings - consumption possibilities - all the things you can afford to buy - all combinations of goods and services are limited by your income & prices that you must pay - rise in income shifts the budget line outward, slope unchanged - preferences: what consumers like and don’t like budget line: the limits to her consumption possibilities, which marks the boundary between those combinations of goods and services that a household can affort to buy and those that it cannot afford utility: the benefit or satisfaction that a person gets from the consumption of goods and services - total uility: the total benefit that a person gets from the consumption of all the different goods and services; depends on the level of consumption, more consumption generally gives more total utility - marginal utility: the change in total utility that results from a one-unit increase in the quantity of a good consumed principle of diminishing marginal utility- the tendency for marinal utility to decrease as the consumption of a good increases consumer equilibrium- a situation in which a consumer has allocated all available income in the way that maximizes total utility, given the prices of goods & services marginal utility per dollar- the marginal utility from a good that results from spending one more dollar on it Utility-maximizing rule: a c
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