Microeconomics- chapter 21 - Assignment Essays %

question

budget constant (BC)

answer

all the combination of two goods (x and y) that you (consumer) can afford.

question

What is needed to graph BC?

answer

income, price of good x (Px), price of good y (Py)

question

What is the slope of BC?

answer

-Px/Py

question

What if one of the components change? (BC)

answer

Income- shifts (BC)
Py- rotates (BC)
Px- rotates (BC)

question

indifference curve (I)

answer

all combinations of two good (x and y) that give the equal satisfaction
- utility = satisfaction/happiness

question

marginal rate of substitution (MRS)

answer

the rate at which a consumer is willing to trade one good for another

slope of the indifference curve

question

4 properties of indifference curve

answer

1. higher is better
2. downward sloping
3. do not cross
4. bowed inward

question

marginal utility (MU)

answer

the increase in utility the customer gets from consuming an additional unit of a good

question

MU equation

answer

MUx = change U/change X

question

law of diminishing utility

answer

at same point, the marginal utility of a good decreases as the consumer consumes more of that good

question

Does diminishing MU imply decreasing total utility?

answer

No, it's still positive but just is adding up slower.

question

Optimization

answer

what the consumer chooses

question

tangency (optimal choice point)

answer

the point at which the BC and I meet

question

"equal bang per buck"

answer

costumers want the marginal utility they get from the last dollar spent on good x to equal the marginal utility from the last dollar spent on y

MUx/Px = MUy/Py

question

How does change in income affect consumer choice?

answer

normal good go the same direction as income
inferior good go opposite direction as income
can not have two inferior goods

1 of 15

question

budget constant (BC)

answer

all the combination of two goods (x and y) that you (consumer) can afford.

question

What is needed to graph BC?

answer

income, price of good x (Px), price of good y (Py)

question

What is the slope of BC?

answer

-Px/Py

question

What if one of the components change? (BC)

answer

Income- shifts (BC)
Py- rotates (BC)
Px- rotates (BC)

question

indifference curve (I)

answer

all combinations of two good (x and y) that give the equal satisfaction
- utility = satisfaction/happiness

question

marginal rate of substitution (MRS)

answer

the rate at which a consumer is willing to trade one good for another

slope of the indifference curve

question

4 properties of indifference curve

answer

1. higher is better
2. downward sloping
3. do not cross
4. bowed inward

question

marginal utility (MU)

answer

the increase in utility the customer gets from consuming an additional unit of a good

question

MU equation

answer

MUx = change U/change X

question

law of diminishing utility

answer

at same point, the marginal utility of a good decreases as the consumer consumes more of that good

question

Does diminishing MU imply decreasing total utility?

answer

No, it's still positive but just is adding up slower.

question

Optimization

answer

what the consumer chooses

question

tangency (optimal choice point)

answer

the point at which the BC and I meet

question

"equal bang per buck"

answer

costumers want the marginal utility they get from the last dollar spent on good x to equal the marginal utility from the last dollar spent on y

MUx/Px = MUy/Py

question

How does change in income affect consumer choice?

answer

normal good go the same direction as income
inferior good go opposite direction as income
can not have two inferior goods

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