Economics Chapter 8

12 terms by AllieMartin

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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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