question
Market basket (or bundle)
answer
List with specific quantities of one or more goods.
question
Indifference curve
answer
Representing all combinations of market baskets that provide a consumer with the same level of satisfaction.
question
Indifference map
answer
Graph containing a set of indifference curves showing the market baskets among which a consumer is indifferent.
question
Marginal rate of substitution (MRS)
answer
Maximum amount of a good that a consumer is willing to give up in order to obtain one additional unit of another good.
question
Perfect substitutes
answer
Two goods for which the marginal rate of substitution of one for the other is a constant.
question
Perfect complements
answer
Two goods for which the MRS is zero or infinite; the indifference curves are shaped as right angles.
question
Bad
answer
Good for which less is preferred rather than more.
question
Utility
answer
Numerical score representing the satisfaction that a consumer gets from a given market basket.
question
Utility function
answer
Formula that assigns a level of utility to individual market baskets.
question
Ordinal utility function
answer
Utility function that generates a ranking of market baskets in order of most to least preferred.
question
Cardinal utility function
answer
Utility function describing by how much one market basket is preferred to another.
question
Budget constraints
answer
Utility function describing by how much one market basket is preferred to another.
question
Budget line
answer
All combinations of goods for which the total amount of money spent is equal to income.
question
Marginal benefit
answer
Benefit from the consumption of one additional unit of a good.
question
Marginal cost
answer
Cost of one additional unit of a good.
question
Corner solution
answer
Situation in which the marginal rate of substitution of one good for another in a chosen market basket is not equal to the slope of the budget line.
question
Marginal utility (MU)
answer
Additional satisfaction obtained from consuming one additional unit of a good.
question
Diminishing marginal utility
answer
Principle that as more of a good is consumed, the consumption of additional amounts will yield smaller additions to utility.
question
Equal marginal principle
answer
Principle that utility is maximized when the consumer has equalized the marginal utility per dollar of expenditure across all goods.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
