mirco 2

law of demand

an economic law that states that consumers buy more of a good when its price decreases and less when its price increases (ceteris paribus).

total utility

the total satisfaction that a person receives from consuming a given amount of goods and services

law of diminishing utility

As a consumer consumes more and more units of a specific commodity, the utility from the successive units goes on diminishing. The additional benefit which a person derives from an increase of his stock of a thing diminishes with every increase in the stock that already has.

consumer equalibrium

Consumer equilibrium exists when a consumer selects or buys the combination of goods that maximizes utility. This is achieved by equating the marginal utility-price ratio for each good consumed or by equating the ratio of prices and the ratio of marginal utilities. In other words, buyers are willing to pay relatively higher prices for goods that generate relatively more marginal utility.

the substitution effect

The idea that as prices rise (or incomes decrease) consumers will replace more expensive items with less costly alternatives. Conversely, as the wealth of individuals increases, the opposite tends to be true

marginal utility

the amount that utility increases with an increase of one unit of an economic good or service

the income effect

the change in consumption resulting from a change in real income