the limit on the consumption bundles that a consumer can afford
indifference curve
a curve that shows consumption bundles that give the consumer the same level of satisfaction
marginal rate of substitution
the rate at which a consumer is willing to trade one good for another
perfect substitutes
two goods with straight-line indifference curves
perfect complements
two goods with right-angle indifference curves
income effect
the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve
substitution effect
the change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution
Giffen good
a good for which an increase in the price raises the quantity demanded