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Chapter 8 – Utility and Demand
Budget Line - Marks the boundary between those combos of goods and services that a
household can afford to buy and those that it cannot afford. The limit of consumption
Utility – The benefit or satisfaction that a person gets from the consumption of goods and
Total Utility - The total benefit that a person gets from the consumption of all the different
goods and services.
Marginal Utility – The change in total utility resulting from a one-unit increase in the quantity
of a good consumed.
Positive Marginal Utility – All the things people enjoy and want more of.
Diminishing Marginal Utility – The tendency for marginal utility to decrease as the
consumption of a good increases.
Consumer Equilibrium – A situation in which a consumer has allocated all of his or her
available income in the way that maximizes his or her total utility, given the prices of goods and
Marginal Utility per Dollar Formula
MUx / Px <=> MUy / Py
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