Economics Chapter 8
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Created by:
AllieMartin on February 21, 2011
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12 terms
Terms | Definitions |
|---|---|
 Utility | Benefit or satisfaction that a person gets from the consumption of goods and services |
| Total Utility | Total benefit that a person gets from the consumption of all the different goods and services |
| Marginal Utility | Change in total utility that results from one unit increase in the quantity of good consumed |
| Diminishing Marginal Utility | Tendency for marginal utility to decrease as the consumption of a good increases is so general and universal that we give it the status of principle |
| Consumer Equilibrium | Situation in which a consumer has allocated all of their available income in a way that maximizes their total utility |
| Consumer's total utility is maximized by: | -spending all available income -equalize the marginal utility per dollar for all goods |
| Marginal Utility per Dollar | Marginal utility from a good obtained by spending one more dollar on that good |
| Behavioral Economics | Studies the ways in which limits on the human brains ability to compute and implement rational decisions influences economic behavior-both the decisions that people make and the consequences of those decisions for the way markets work |
| Bounded Rationality | Rationality that is limited by the computing power of the human brain |
| Bounded Willpower | The less-than-perfect willpower that prevents us from making a decision that we know, at the time of implementing the decision, we will later regret |
| Main applications of behavioral economics: | finance and savings |
| Neuroeconomics | Study of the activity of the human brain when a person makes an economic decision |
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