| Term | Definition |
|---|
| law of diminishing marginal utility | the principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases. |
| utility | the want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services) |
| total utility | the total amount of satisfaction derived from the consumption of a single product or a combination of products |
| marginal utility | the extra utility a consumer obtains from the consumption of 1 additional unit of a good or service; equal to the change in total utility divided by the change in the quantity consumed. |
| rational behavior | human behavior based on comparison of marginal costs and marginal benefits; behavior designed to maximize total utility. |
| budget constraint | the limit that the size of a consumer's income (and the prices that must be paid for goods and services) imposes on the ability of that consumer to obtain goods and services. |
| utility-maximizing rule | the principle that to obtain the greatest utility, the consumer should allocate money income so that the last dollar spent on each good or service yields the same marginal utility |
| income effect | a change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price. |
| substitution effect | a change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the product's price. |
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