Utility: the benefit or satisfaction that a person gets from the consumption of a good or service.
Total utility: the total benefit that a person gets from the consumption of a good or services.
Marginal utility: the change in total utility that results from a one-unit increase in the quantity of a good consumed.
Diminishing marginal utility: marginal utility decrease as the quantity of a good consumed increase.(when Q=1, marginal utility is maximized.)
equi-marginal principle
If the MUA/PA is greater than the MUB/PB, people will consume more good A, the marginal utility decrease when consume good A. MUA/PA may decrease. It may obtain the equi-marginal principle again.
when quantity increase, the marginal utility decrease, the price will decrease (derivation of an individual demand curve)
Limitation and assumption
1. Consumers have limited income
2. Consumers behave rational manner
3. Consumers seek to maximize their utility
4. Utility can be measured as numerical
Indifference curve
An indifference curve shows all combination of two goods that give comsumers equal utility.
The indifference curve never overlap.
budget line
The budget line shows the consumption of two goods that can be purchased with given income and given price.
Causes of a shift in the budget: the change in income
Causes of a pivot in the budget line: the change in the price of goods
The diagram of normal good, inferior good, Giffen good
substitution effect
The substitution effect refers to the change in demand for a good as a result of a change in its relative price compared to that of other substitute goods.
income effect
The resultant change in demand for a good or service caused by an increase or decrease in a consumer's purchasing power or real income.
When the price of bananas increase
the diagram of normal good
the diagram of inferior good
the diagram of Giffen good
