# ch4

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1. Complements
Two goods are complements in consumption if an increase in the price of one causes a leftward shift in the demand curve for the other. Two goods whose crossprice elasticity of demand is negative.
2. cross-price elasticity of demand for two goods
The percentage change in the quantity demanded of one good in response to a 1 percent change in the price of a second good
3. elastic demand
Price elasticity of demand that is greater than one.
4. income effect
A change in quantity of a good demanded because a change in the price of the good has changed the real income of the person who purchases it.
5. income elasticity of demand
The percentage change in the quantity demanded of a good in response to a 1 percent change in income.
6. inelastic demand
Price elasticity of demand less than one.
7. inferior good
A good whose demand curve shifts leftward when the incomes of buyers increase. A good with a negative income elasticity of demand.
8. law of demand
Other things remaining equal, people will purchase a smaller quantity of any good or service they want as the price of purchasing one more unit of it increases.
9. law of diminishing marginal utility
As consumption of a good increases beyond some point, the additional utility gained from an additional unit of the goods tends to decline.
10. luxury good
A good with an income elasticity of demand greater than one; a subset of normal goods.
11. marginal utility
The additional utility gained from consuming an additional unit of a good.
12. nominal price
Absolute price of a good in dollar terms.
13. normal good
A good whose demand curve shifts rightward when the incomes of buyers increase. A good with a positive income elasticity of demand
14. optimal combination of goods
The affordable combination that yields the highest total utility.
15. perfectly elastic
Price elasticity of demand is infinite.
16. perfectly inelastic
Price elasticity of demand is zero.
17. point elasticity of demand
Elasticity calculated at a specific point on a demand curve.
18. price elasticity of demand
The percentage change in the quantity demanded of a good that results from a 1 percent change in its price.
19. rational spending rule
The rule that in order to maximize the total utility a consumer can derive from a fixed budget, spending must be allocated across goods so that marginal utility per dollar is the same for each good.
20. real price
Dollar price of a good relative to the average dollar price of all other goods and services.
21. Substitutes
Two goods are substitutes in consumption if an increase in the price of one causes a rightward shift in the demand curve for the other. Two goods whose cross-price elasticity of demand is positive.
22. substitution effect
A change in consumption that holds utility constant while there is a change in relative price.
23. total expenditure
The dollar amount consumers spend on a product is equal to the dollar amount sellers receive.
24. total revenue
The dollar amount consumers spend on a product is equal to the dollar amount sellers receive.
25. unitary elastic demand
Price elasticity of demand equal to one.
26. Util
A unit of pleasure or utility obtained from an item.
27. Utility
The sense of well-being, satisfaction, or pleasure a person derives from consuming a good or service

## Card Set Information

 Author: christiemcmanaman ID: 117514 Filename: ch4 Updated: 2011-11-17 17:39:58 Tags: economics Folders: Description: ch4 key terms econ Show Answers:

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