Definitions
the satisfaction of a good/service declines as people consumer more of it.
Law of diminishing marginal utility
represents the choice-making behaviors of sellers
supply
demand
choice-making behaviors of buyers
ceteris paribus
all else remains the same
The satisfaction that people receive from consumption of a good/service
utility
specialization
A focus on a particular activity or area of study
cost associated with economic decisions. Next best thing
opportunity cost
Change in quantity demanded of a good or service caused by a change in real income
income effect
Normative Statement
statement which describes how the world should be
change in quantity demanded of a good or service caused by a change in its price relative to its substitutes.
Substitution effect
statement which describes the world as it is
Positive Statement
The study of the economy as a whole
Macroeconomics
Price Index Equation
(cost of market basket in a given year)/ (cost of market basket in base year) x 100
Goods that can be used as alternatives to another good
Substitute Goods
Microeconomics
the study of the economic behavior and decision making of small units, such as individuals, families, and businesses
a good that consumers demand less of when their incomes increase
Inferior Good
the rate at which a consumer is willing to trade one good for another without a change in total utility
Marginal Rate of Substitution
Goods that are commonly used with other goods
Complementary Goods
Values unadjusted for the effects of inflation
Nominal Values
values that have been adjusted for the effects of inflation
Real Values
A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products' prices.
Budget Line
a graph containing a set of indifference curves showing the market baskets among which a consumer is indifferent
Indifference Map
Indifference Curve
a curve that shows the combinations of consumption bundles that give the consumer the same utility
Marginal Utility
change in utility derived from an increase in consumption of a particular good
Normal Good
a good that consumers demand more of when their incomes increase