Chapter 6

denotes satisfaction, a subjective pleasure that an individual can derive from consuming a good or service

It is how individuals divide their limited sources among the commodities that provide them satisfaction

It states that the consumer prefers the best bundle of goods he or she can afford

What are the factors that make a consumer decide?

Ways of measuring utility

It is used to quantify satisfaction in the past

attaches specific numbers to different levels of satisfaction

Used as an alternative to Cardinal Utility Theory

They said that the only thing consumers can do is to rank or order his preferences

It will tell something about an individual's personality

They depict which goods provide satisfaction and how much satisfaction will he or she receive

States that each successive improvement in health generates less and less additions to total utility

As more goods are consumed, the extra satisfaction or marginal utility received decreases

It is the measurement for tility

When total utility is maximized with regard to his income

Three assumption of rational preferences

It implies that a bundle of good can be ranked as preferred, indifferent or less preferred

It means that you choose one bundle over the other

It means that you will get the same satisfaction with two bundles

"More is better"

a bundle with more of one good and no less of the other is preferred or indifferent to as otherwise equivalent bundle

It is explained by the foregoing assumption

It is a curve that shows the different combinations of Good X and Good Y which yield the same level of utility

3 characteristics or Indifference curves

The amount of Good Y that a consumer is willing to give up in exchange for Good X and still lie on the same indifference curve

It shows the different combinations of Good X and Good Y that a consumer can purchase given his income and prices of goods

It is a collection of points of consumer equilibrium resulting from varying income

It shows the amount of a commodity that the consumer would buy per unit of time at different levels of income

Normal good

Inferior good

It is when a consumer is consuming greater amounts of Good X in relation to income

It is a collection of points of consumer's equilibrium resulting from varying prices of Good Y