question
In economic decisions, what does the individual consumer decide?
answer
1) The allocation of time between work and leisure
2) The allocation of income between consumption and saving
2) The allocation of income between consumption and saving
question
What must the consumer do?
answer
Allocate her wealth among different assets (T-bills, checking accounts, stocks, bonds, housing, etc.)
question
Money set aside for current consumption has to do what?
answer
Allocated among the different goods
question
What must the consumer purchase?
answer
The best basket of commodities that he can afford
question
Prices and Quantities
answer
= -p1/p2
question
Commodity Bundle
answer
5x1 + 4x2 < 60
question
Slope of Budget Line
answer
Total Expenditure
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Budget Constraint
answer
Income
question
If p1 = 4, p2 = 5, m =60; what is the budget constraint?
answer
m = (p1+t)x1 +p2x2
question
Budget Line
answer
p1x1 + p2x2 = (1-t)m
question
Interior and Corner Bundles
answer
p1x1 + p2x1 = m - f
question
What does income equal?
answer
1) Preferences are defined over bundles of goods and services, not over individual commodities
2) Because the budget line will change as prices and income change, it is not enough to have a record of the consumer's preferences over bundles in the current budget set.
3) Preferences are independent of prices and income.
2) Because the budget line will change as prices and income change, it is not enough to have a record of the consumer's preferences over bundles in the current budget set.
3) Preferences are independent of prices and income.
question
Expenditure on Good 1 + Expenditure on all other commodities =
answer
Strictly preferred
question
Composite Commodity
answer
"A is strictly preferred to B"
question
Market Opportunity Cost (MOC)
answer
Indifference Relation
question
Changes in the budget line due to changes in commodity 1
answer
A and B are equally desireable
question
Changes in the budget line due to changes in commodity 2
answer
Individual strictly prefers A to B
question
Changes in Income
answer
Only happens when the individual is indifferent to the the two bundles
question
Proportional Change in both prices
answer
Budget percentage of income is spent on certain goods lends to be consistent with income bundles
question
Effects of a Proportional Change in Prices and Income
answer
1) Transitivity
2) Both commodities are essential
3) Monotonicity
4) Convexity
2) Both commodities are essential
3) Monotonicity
4) Convexity
question
A sales tax on commodity 1 only
answer
1) If there is an increase in the consumption of one of the goods without a decrease in the consumption of the other good, then the new bundle is strictly preferred to the original one
question
An equal ad volerem tax on both goods
answer
1) An individual's preferences are strictly convex if for any two bundles A and B that she is indifferent between, any bundle C that is a weighted average of A and B will be strictly preferred to both A and B
2)We tend to like balance in our plans
2)We tend to like balance in our plans
question
Unit Tax Equation
answer
The rate at which utility increases
question
Proportional Income taxequation
answer
Negative slope of an indifference curve
question
The price for the first Q units of commodity 1 is lower than the charge for any additional units
answer
(MU1)/(MU2)
question
A subsidy paid to the consumer for each unit of the first good, but only up to o the first Q units
answer
The solution gives us numerical values for x1 and x2
question
The first Q units are free
answer
undefined
question
Entry Fee Equation
answer
undefined
question
An entry fee F and also charge of p1 dollars per unit of commodity 1
answer
undefined
question
Individual Preference
answer
undefined
question
Three Points on Preferences
answer
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question
Symbol >
answer
undefined
question
A > B
answer
undefined
question
~ Symbol
answer
undefined
question
A ~ B
answer
undefined
question
Preference Relations
answer
undefined
question
Utility
answer
undefined
question
U(A) > U(B)
answer
undefined
question
U(A) = U(B)
answer
undefined
question
Utility Function
answer
undefined
question
Cobb-Douglas Preferences
answer
undefined
question
Utility Functions when the goods are perfect subsitutres
answer
undefined
question
Utility Function when the goods are perfect complements
answer
undefined
question
4 Properties of Preference
answer
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question
Transitivity
answer
undefined
question
Both commodities are essential
answer
undefined
question
Montonicity
answer
undefined
question
Goods, bads, and neutral commodities
answer
undefined
question
Convexity
answer
undefined
question
Convex combination of two commodity bundles
answer
undefined
question
Classical Preferences
answer
undefined
question
Marginal Utility of Commodity 1
answer
undefined
question
Marginal Utility of Commodoities 1 and 2
answer
undefined
question
Marginal Utility Equation
answer
undefined
question
The indifference map
answer
undefined
question
The indifference curve is downward sloping
answer
undefined
question
The indifference curve bends in towards the origin
answer
undefined
question
Convex Pregerence
answer
undefined
question
Bundles lying above or below and indifference curve
answer
undefined
question
Two different curves do not touch each other
answer
undefined
question
Higher Indifference curves contain preferred bundles
answer
undefined
question
Marginal Rate of Subsitution
answer
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question
Positive MRS
answer
undefined
question
Diminishing MRS
answer
undefined
question
What is the MRS equal to?
answer
undefined
question
Chosen Bundle
answer
undefined
question
The chosen bundle will not be below the budget line or above, and it will not be at a point where the indifference curve crosses the budget line if both commodities are positive
answer
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question
Tangency
answer
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question
Interior Choice
answer
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question
Two Individuals with the same preference relation will make difference choices if their incomes are different
answer
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question
Demand Function for a good or service
answer
undefined
question
What if we specify numerical values for p1,p2 and m?
answer
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