(See related pages)
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| budget constraint | The limit that the size of a consumer's income (and the prices that must be paid for goods and services) imposes on the ability of that consumer to obtain goods and services. (See page(s) p. 121) |
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| 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. (See page(s) p. 125) |
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| 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. (See page(s) p. 118) |
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| 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. (See page(s) p. 118) |
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| rational behaviour | Human behaviour based on comparison of marginal costs and marginal benefits; behaviour designed to maximize total utility. (See page(s) p. 121) |
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| 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) A firm will purchase more of an input whose relative price has declined and use less of an input whose relative price has increased. (See page(s) p. 125) |
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| total utility | The total amount of satisfaction derived from the consumption of a single product or a combination of products. (See page(s) p. 118) |
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| 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. (See page(s) p. 121) |