budget constraint  an income limitation on a person’s expenditure on goods and services.
consumer surplus  the difference between what a person is willing to pay for an additional unit of a good—the marginal benefit—and the market price of the good; for the market as a whole, it is the sum of all the individual consumer surpluses, or the area below the market demand curve and above the market price.
income effect  the amount by which the quantity demanded falls because of the decline in real income from a price increase.
individual demand curve  a curve showing the relationship between quantity demanded of a good by an individual and the price of the good.
marginal benefit  the increase in the benefit from, or the willingness to pay for, one more unit of a good.
market demand curve  the horizontal summation of all the individual demand curves for a good; also simply called the demand curve.
substitution effect  the amount by which quantity demanded falls when the price rises, exclusive of the income effect.
utility  a numerical indicator of a person’s preferences in which higher levels of utility indicate a greater preference.
utility maximization  an assumption that people try to achieve the highest level of utility given their budget constraint.