The rational consumer

The utility of a consumer is a measure of the satisfaction the consumer derives from consumption of goods and services.

An individual’s consumption bundle is the collection of all the goods and services consumed by that individual.

An individual’s utility function gives the total utility generated by his or her consumption bundle.

A util is a unit of utility.

The marginal utility of a good or service is the change in total utility generated by consuming one additional unit of that good or service. The marginal utility curve shows how marginal utility depends on the quantity of a good or service consumed.

The principle of diminishing marginal utility says that each successive unit of a good or service consumed adds less to total utility than the previous unit.

A budget constraint requires that the cost of a consumer’s consumption bundle be no more than the consumer’s income.

A consumer’s consumption possibilities is the set of all consumption bundles that can be consumed given the consumer’s income and prevailing prices.

A consumer’s budget line shows the consumption bundles available to a consumer who spends all of his or her income.

A consumer’s optimal consumption bundle is the consumption bundle that maximizes the consumer’s total utility given his or her budget constraint.

The marginal utility per dollar spent on a good or service is the additional utility from spending one more dollar on that good or service.

Marginal utility per dollar spent on a good = Marginal utility of one unit of the good/Price of one unit of the good = MUgood/Pgood

The optimal consumption rule says that when a consumer maximizes utility, the marginal utility per dollar spent must be the same for all goods and services in the consumption bundle.

MUC/PC = MU/ PP

The substitution effect of a change in the price of a good is the change in the quantity of that good consumed as the consumer substitutes the good that has become relatively cheaper in place of the good that has become relatively more expensive.

The income effect of a change in the price of a good is the change in the quantity of that good consumed that results from a change in the consumer’s purchasing power due to the change in the price of the good.

⇐ Предыдущая 1 2 34