Economics 14/e   McConnell
	Online Learning Center

income effect

A change in the price of a product changes a consumer’s real income (purchasing power) and thus the quantity of the product purchased.

substitution effect

(1) A change in the price of a consumer good changes the relative expensiveness of that good and hence changes the consumer’s willingness to buy it rather than other goods. (2) The effect of a change in the price of a resource on the quantity of the resource employed by a firm assuming no change in its output.

utility

The want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services).

total utility

The total amount of satisfaction derived from the consumption of a single product or a combination of products.

marginal utility

The extra utility a consumer obtains from the consumption of one additional unit of a good or service; equal to the change in total utility divided by the change in the quantity consumed.

law of diminishing marginal utility

As a consumer increases the consumption of a good or service the marginal utility obtained from each additional unit of the good or service decreases.

utility-maximizing rule

To obtain the greatest utility the consumer should allocate money income so that the last dollar spent on each good or service yields the same marginal utility.

Copyright ©1998 The McGraw-Hill Companies. All rights reserved.Any use is subject to the Terms of Use and Privacy Policy.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.
For further information about this site contact mhhe_webmaster@mcgraw-hill.com.