income effect a higher price means that, in effect, the buying power of income has been reduced, even though

actual income has not changed; always happens simultaneously with a substitution effect

marginal utility the additional utility provided by one additional unit of consumption

marginal utility per dollar the additional satisfaction gained from purchasing a good given the price of the

product; MU/Price

substitution effect when a price changes, consumers have an incentive to consume less of the good with a

relatively higher price and more of the good with a relatively lower price; always happens simultaneously

with an income effect

total utility satisfaction derived from consumer choices

Key Concepts and Summary

6.1 Consumption Choices

Economic analysis of household behavior is based on the assumption that people seek the highest level of

utility or satisfaction. Individuals are the only judge of their own utility. In general, greater consumption of a
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