Utility
The enjoyment or satisfaction people receive from consuming goods and services
Marginal utility (MU)
The change in total utility a person receives from consuming one additional unit of a good or service
Law of diminishing marginal utility
The principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time
Income effect
The change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding all other factors constant
Substitution effect
The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power
Network externality
A situation in which the usefulness of a product increases with the number of consumers who use it
Behavioral economics
The study of situations in which people make choices that do not appear to be economically rational
Opportunity cost
The highest-valued alternative that must be given up to engage in an activity
Endowment effect
The tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it
Sunk cost
A cost that has already been paid and cannot be recovered
Indifference curve
A curve that shows the combinations of consumption bundles that give the consumer the same utility
Marginal rate of substitution (MRS)
The rate at which a consumer would be willing to trade off one good for another