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Mingming
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denotes satisfaction, a subjective pleasure that an individual can derive from consuming a good or service
Utility
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It is how individuals divide their limited sources among the commodities that provide them satisfaction
Utility
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It states that the consumer prefers the best bundle of goods he or she can afford
Te economic theory of consumer
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What are the factors that make a consumer decide?
- Tastes or Preferences
- Income
- Price
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Ways of measuring utility
- Cardinal Utility Theory
- Ordinal Utility Theory
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It is used to quantify satisfaction in the past
Cardinal Utility Theory
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attaches specific numbers to different levels of satisfaction
Cardinal Ranking of Preferences
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Used as an alternative to Cardinal Utility Theory
Ordinal Utility Theory
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They said that the only thing consumers can do is to rank or order his preferences
Ordinalists
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It will tell something about an individual's personality
Tastes and Preferences
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They depict which goods provide satisfaction and how much satisfaction will he or she receive
Tastes and Preferences
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States that each successive improvement in health generates less and less additions to total utility
Law of Diminishing Marginal Utility
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As more goods are consumed, the extra satisfaction or marginal utility received decreases
Law of Diminishing Marginal Utility
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It is the measurement for tility
Utils
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When total utility is maximized with regard to his income
Equilibrium
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Three assumption of rational preferences
- Completeness
- Non-Satiation
- Transitivity
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It implies that a bundle of good can be ranked as preferred, indifferent or less preferred
Completeness
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It means that you choose one bundle over the other
Preffered
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It means that you will get the same satisfaction with two bundles
Indifferent
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"More is better"
Non-satiation
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a bundle with more of one good and no less of the other is preferred or indifferent to as otherwise equivalent bundle
Non-Satiation
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It is explained by the foregoing assumption
Transitivity
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It is a curve that shows the different combinations of Good X and Good Y which yield the same level of utility
Indifference curve
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3 characteristics or Indifference curves
- Indifference curves are negatively sloped
- Indifference curves are usually convex to origin
- Indifference curves do not intersect
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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
Marginal Rate of Substitution
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It shows the different combinations of Good X and Good Y that a consumer can purchase given his income and prices of goods
Budget line
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It is a collection of points of consumer equilibrium resulting from varying income
Income Consumption Curve
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It shows the amount of a commodity that the consumer would buy per unit of time at different levels of income
Engel Curve
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Normal good
Positively sloped Engel Curve
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Inferior good
Negatively sloped Engel Curve
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It is when a consumer is consuming greater amounts of Good X in relation to income
Luxury good
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It is a collection of points of consumer's equilibrium resulting from varying prices of Good Y
Price Consumption Curve
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