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12 terms

Economics Chapter 8

STUDY
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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