Emily Tan AP Econ Chapter 7 consumer behavior Law of diminishing marginal utility Added satisfaction declines as a consumer acquires

additional units of a given product Utility Is want satisfying power Total utility Is the total amount of satisfaction or pleasure a person derives from consuming some specific quantity Marginal utility Is the extra satisfaction a consumer realizes from an additional unit of that product Rational behavior Consumer tries to use his or her money income to derive the greatest amount of satisfaction or utility from it Budget constraint At any point in time the consumer has a fixed, limited amount of money income Utility maximizing rule To maximize satisfaction, the consumer should allocate his or her money income so that the last dollar spent on each product yeilds the same amount of extra marginal utility Consumer equilibrium When the consumer has balance his or her margins using utility maximizing rul, he or she has achieved consumer equilibrium and has no incentive to alter his or her expenditure pattern Income effect is the impact that a change in the price of a product has on a consumer s realy income and consequently on the quantity demanded ofthat good Substitution effect

Is the impact that a change in a product s price ahs on its relative expensiveness and consequently on the quantity demanded Budget line Is a schedule or curve showing various combinations of two products a consumer can purchase with a specific money income Indifference curve Shows all the combinations of two products a and b that will yield the same total satisfaction or total utility to a consumer Marginal rate of substitution MRS The slope of an indifference curve at each point measures the marginal rate of substitution of the combination of two goods represented by that point Indifference mao d On the indifference map each curve reflects a different level of total utility and therefore never crosses another indifference curve Equilibrium position The utility maximizing combination will be the combination lying on the high est attainable indifference curve. It s called the sumer s equilibrium position.