AGB 212 MIDTERM #2 STUDY GUIDE 2026
Total utility - Answers - would be the number of units of utility that a consumer gains
from consuming a given quantity of a good, service, or activity during a particular time
period. The higher a consumer's total utility, the greater that consumer's level of
satisfaction.
Marginal utility - Answers - The amount by which total utility rises with consumption of
an additional unit of a good, service, or activity, all other things unchanged
Law of diminishing marginal utility - Answers - tendency of marginal utility to decline
beyond some level of consumption during a period
Budget constraint - Answers - a restriction that total spending cannot exceed the
budget available
Utility‐maximizing condition - Answers - Utility is maximized when total expenditures
equal the budget available and when the ratios of marginal utilities to prices are equal
for all goods and services
Income-price change - Answers - an imaginary exercise in which we assume that
when the price of a good or service changes, the consumer's income is adjusted so that
he or she has just enough to purchase the original combination of goods and services at
the new set of prices
Substitution effect - Answers - The change in a consumer's consumption of a good in
response to an income-compensated price change
Income effect - Answers - The change in consumption of a good resulting from the
implicit change in income because of a price change
Budget line - Answers - shows graphically the combinations of two goods a consumer
can buy with a given budget.
Indifference curve - Answers - Combinations of two goods that yield equal levels of
utility
Marginal rate of
substitution - Answers - The maximum amount of one good a consumer would be
willing to give up in order to obtain an additional unit of another
Total product curve - Answers - shows the quantities of output that can be obtained
from different amounts of a variable factor of production, assuming other factors of
production are fixed.
Total utility - Answers - would be the number of units of utility that a consumer gains
from consuming a given quantity of a good, service, or activity during a particular time
period. The higher a consumer's total utility, the greater that consumer's level of
satisfaction.
Marginal utility - Answers - The amount by which total utility rises with consumption of
an additional unit of a good, service, or activity, all other things unchanged
Law of diminishing marginal utility - Answers - tendency of marginal utility to decline
beyond some level of consumption during a period
Budget constraint - Answers - a restriction that total spending cannot exceed the
budget available
Utility‐maximizing condition - Answers - Utility is maximized when total expenditures
equal the budget available and when the ratios of marginal utilities to prices are equal
for all goods and services
Income-price change - Answers - an imaginary exercise in which we assume that
when the price of a good or service changes, the consumer's income is adjusted so that
he or she has just enough to purchase the original combination of goods and services at
the new set of prices
Substitution effect - Answers - The change in a consumer's consumption of a good in
response to an income-compensated price change
Income effect - Answers - The change in consumption of a good resulting from the
implicit change in income because of a price change
Budget line - Answers - shows graphically the combinations of two goods a consumer
can buy with a given budget.
Indifference curve - Answers - Combinations of two goods that yield equal levels of
utility
Marginal rate of
substitution - Answers - The maximum amount of one good a consumer would be
willing to give up in order to obtain an additional unit of another
Total product curve - Answers - shows the quantities of output that can be obtained
from different amounts of a variable factor of production, assuming other factors of
production are fixed.
