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Flashcards in Chapter 8 Deck (11):
1

utility

Refers to the level of satisfaction or pleasure that people receive from their choices.

2

Total utility

The total amount of satisfaction one receives through the consumption of a certain quantity of a good. The most common pattern of total utility is that
consuming additional goods leads to greater total utility.

3

marginal rate of substitution

The rate at which a person is willing to trade one good for another so that utility will remain the same.

4

marginal utility

The additional utility provided by one additional unit of consumption of a good. The most common pattern for marginal utility is diminishing marginal utility.

5

diminishing marginal utility

Refers to the situation whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit.

6

indifference curve

Shows combinations of goods that provide an equal level of utility or satisfaction.

7

perfect substitutes

Extreme case of indifference curve. Two goods are perfect substitutes if the marginal rate of substitution between them is constant.

8

perfect complements

Extreme case of indifference curve. Two goods are perfect complements when a person only cares about consuming two goods in a specific proportion.

9

substitution effect

Occurs when a good becomes more expensive and people seek out substitutes.

10

utils

Used to measure one’s own utility.

11

income effect

Refers to the ways in which a change in the price of a good alters the effective buying power of one’s income.