Ch. 7

• What is utility in economics?

  The satisfaction from consuming a good
• What does the marginal principle suggest?

  Decisions are made by considering small changes
• What characterizes rational decision making?

  Maximizing objectives by balancing benefits and costs
• What does the law of diminishing marginal utility state?

  More units consumed leads to lower additional utility
• What is marginal utility?

  The additional utility from one more unit consumed
• What is a price signal in economics?

  Price carries information guiding market equilibrium
• What is allocative efficiency?

  Producing goods according to consumer preferences
• When is allocative efficiency achieved?

  When price equals marginal cost
• What is economic efficiency?

  When both productive and allocative efficiency are met