basic microeconomics

• <S: >The law of diminishing marginal utility states that as we consume more of a good, the marginal utility we derive from additional units of consumption decreases.
• Budget Line contains infinite points of combinations of commodity items that the same budget can buy at given price.
• The income and substitution effects provide a framework for understanding how consumers make decisions in response to changes in prices and income.
• Convergence, often referred to as a “catch-up effect” in economics.
• Income effect, potential increase in the consumption of two commodities.
• Indifference curve, a useful tool for analyzing consumption behavior on utility theory.
• Insocost line, shows all combination of inputs, which cost the same total amount.
• Marginal rate of substitution (MRS), rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility.
• Marginal Utility (MU), additional satisfaction derived from consumption of additional goods and services; also defined as the utility or dissatisfaction from the last unit of consumption.
• Maslow’s theory of Motivation, diagram that explains why people are driven by particular needs at particular times.
• Optimum combination, implies that consumer can increase the level of satisfaction, despite a fixed income, by altering the consumption mix.
• Paradox value, Discusses why absolute necessities on life (i.e., water) are cheaper as compared to luxuries in life (i.e., diamond).
• Substitution effect, an idea that when price increases or income decreases, consumers will replace expensive items with cheaper alternatives.
• Total utility (TU), total amount of satisfaction derived from consuming foods and services.
• Utility, satisfaction derived from the consumption of a commodity.
• Utility is defined as the satisfaction derived from the consumption of a commodity which determines consumption and demand behavior.
• Cultural factors exert the broadest and deepest influence on consumer behavior.
• Cultural factors play a significant role in shaping consumer behavior and preferences.
• Cultural factors influence clothing preferences, religious practices, gift-giving, and product choices.
• Social factors influence a consumer's behavior through reference groups, family roles and statuses, and social roles and statuses.
• Each point on an indifference curve represents a combination of two goods that provides the consumer with the same level of satisfaction.
• Indifference curves do not intersect with each other, as it would imply that the consumer is indifferent between two different levels of satisfaction, which contradicts the assumptions of rational behavior.
• The concept of indifference curves is based on the assumption that consumers aim to maximize their satisfaction, subject to their budget constraints.
• Indifference curves typically slope downward from left to right, reflecting the principle of diminishing marginal rate of substitution, which means that as a consumer gives up some units of one good for another, the marginal benefit (or satisfaction) decreases.
• Consumers who are very difficult to please would have their TU curve sharply skewed to the right if we will reconstruct Figure 26.
• The consumer is only willing to consume up to the point of maximum satisfaction from where an additional unit of consumption no longer yields additional satisfaction.
• In economics, an indifference curve is a graphical representation that shows combinations of two goods or services that provide a consumer with an equal level of satisfaction or utility.
• The points on the budget line represent combinations of the two goods that fully utilize the consumer's income, the consumer can choose any point on the budget line or below it, but cannot afford points above the line.
• The slope of the budget line is determined by the relative prices of the two goods, the slope represents the opportunity cost of one good in terms of the other.
• The income constraint on the budget line reflects the consumer's income or budget, which is limited, the consumer cannot spend more than their income allows.
• A higher indifference curve represents a higher level of satisfaction, as you move away from the origin along an indifference curve, the level of satisfaction increases.
• Consumers who are very easy to please would have their TU curve sharply skewed to the left, as it only takes less of additionally more satisfying consumption units to multiply satisfaction to the fullest.
• Indifference curves are usually convex to the origin, reflecting the diminishing marginal rate of substitution, indicating that consumers are generally willing to trade off one good for another, but at a decreasing rate.
• In economics, a budget line, also known as a budget constraint or price line, is a graphical representation of the combinations of two goods that a consumer can afford given their income and the prices of the goods.
• The budget line typically represents the trade-off between two goods, the horizontal axis usually represents the quantity of one good, and the vertical axis represents the quantity of another good.
• Indifference curves are typically used in microeconomics to analyze consumer preferences and choices.
• Beyond this point, the additional dissatisfaction (negative MU) that the consumer begins to incur simply decreases total utility (TU).
• The budget line shows the various combinations of goods that exhaust a consumer's income when the prices and quantities of the goods are taken into account.
• The diminishing MU causes TU to decline eventually, for which reason, maximum consumption is only up to the point of maximum utility.
• Consumers behave differently with the same consumption of a good due to the varying influence of cultural, social, personal, and psychological factors.