Chapter 5 Notes1 Principles Of Microeconomics

Chapter 5 Notes- Demand: The benefit side of the market -Law of demand: people do less of what they want to do as the cost of doing it rises -utility- is the concept to represent the satisfaction people derive from their consumption activities -utility maximization- people try to allocate their incomes so as to maximize their satisfaction -Marginal Utility = change in utility/ change in consumption -denotes the amount by which total utility changes when consumption changes by one unit -law of diminishing marginal utility- tendency for marginal utility to decline as consumption increases beyond some point -rational spending rule- spending should be allocated across goods so that marginal utility per dollar is the same for each good -consumer surplus- economic surplus received by buyers -real price- the dollar price of a good relative to the average dollar price of all other goods -nominal price- the absolute price of a good in dollar terms