| A | B |
|---|
| Absolute Prices | The price of a good measured in units of currency. |
| Relative Prices | The price of one unit of good X measured not in currency, but in the number of units of good Y that must be sacrificed to acquire good X |
| Substitution Effect | The change in quantity demanded resulting from a change in the price of one good relative to the price of other goods |
| Income Effect | Due to a higher price, the change in quantity demanded that results from a change in the consumer's purchasing power (or real income). |
| Total Welfare | The sum of consumer surplus and producer surplus |
| Consumer Surplus | The difference between a buyer's willingness to pay and the price actually paid. |
| Producer Surplus | The difference between the price received and the marginal cost of producing the good. |
| Excise Tax | A per unit tax on a specific good or service that shifts the supply curve upward by the amount of the tax. |
| Incidence of Tax | The division of a tax between consumers and producers |
| Deadweight Loss | The lost net benefit to society caused by a movement away from the competitive market equilbrium |
| Inefficient | A situation in which there are missed opportunities |
| Subsidy | A government transfer, either to consumers or producers, of the consumption or production of a good |
| Price Floor | A legal minimum price, below which the product cannot be sold |
| Price Ceiling | A legal maximum price, above which the product cannot be sold |
| Utility | The happiness, benefit, satisfaction, or enjoyment gained from consumption of goods or services |
| Total Utility | Total happiness received from consumption of a number of units of a good |
| Marginal Utility | The change in an individual's total utility from the consumption of an additional unit of a good or service |
| Utils | A hypothetical unit of measurement often used to quantify utility; "Happy Points" |
| Law of Diminishing Marginal Utility | In a given time period, as consumption of an item increases, the marginal utility from that item falls. |
| Constrained Utility Maximization | Given price and income, a consumer stops consuming a good when the price paid for the next unit is equal to the marginal utility received |
| Utility Maximizing Rule | The consumer chooses amounts of goods X and Y, with his or her limited income, so that the marginal utility per dollar spent is equal for both goods. |
| Consumption Bundle | The set of all goods and services consumed by a given individual |
| Horizontal Summation | The process of adding, at each price, the individual quantities demanded to find the market demand curve for a good. |
