Chapter 8 Utility and Demand – Flashcards
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Marginal Utility
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The "change" in total utility resulting from a one-unit increase in the quantity consumed.
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Diminishing Marginal Utility
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The tendency for marginal utility to decrease as the quantity consumed of a good increases.
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Consumer Equlibrium
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A situation in which a consumer has allocated all his or her available income in the way that, given the prices of goods and services, maximizes his or her total utility.
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Marginal Utility per Dollar
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The marginal utility from a good that results from spending one more dollar on it. It is calculated as the marginal utility from the good divided by its price.
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Behavioral Economics
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A study of the ways in which limits on the human brain's ability to compute and implement rational decisions influences economic behavior—both decisions that people make and the consequences of those decisions for the way markets work.
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Neuroeconomics
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The study of the activity of the human brain when a person makes an economic decision.
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The reason why we do not always make rational economic choices/decisions
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Behavior Economics & Neuroeconomics seek to acheive:
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• Bounded Rationality • Bounded Willpower • Bounded Self-interest
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(3) Limitations on Human Rationality:
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