Chapter 5
Consumer Choice and Utility
By Boundless
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Utility is an economic measure of how valuable, or useful, a good or service is to a consumer.
The theory of utility states that, all else equal, a rational person will always choose the option that has the highest utility.
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Marginal utility of a good or service is the gain from an increase or loss from a decrease in the consumption of that good or service.
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The principle of diminishing marginal utility states that as more of a good or service is consumed, the marginal benefit of the next unit decreases.
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Budget constraints represent the plausible combinations of products and services a buyer can purchase with the available capital on hand.
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Economists mapping consumer preferences use indifference curves to illustrate a series of goods that represent equivalent utility.
Almost all indifference curves will be negatively sloped, convex, and will not intersect.
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One of the central considerations for a consumer's consumption choice is income or wage levels, and thus their budgetary constraints.
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The demand curve shows how consumer choices respond to changes in price.
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The law of demand pursues the derivation of a demand curve for a given product that benchmarks the relative prices and quantities desired.
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The income effect and substitution effect combine to create a labor supply curve to represent the consumer trade-off of leisure and work.