3 Flashcards
LIST WITH SPECIFIC QUANTITIES OF ONE OR MORE GOODS
Market basket/bundle
Preferences are assumed to be complete. In other words, consumers can compare and rank all possible baskets. Thus, for any two market baskets A and B, a consumer will prefer A to B, will prefer B to A, or will be indifferent between the two. By indifferent we mean that a person will be equally satisfied with either basket.
COMPLETENESS
Preferences are ———, ——— means that if a consumer prefers basket A to basket B and basket B to basket C,
then the consumer also prefers A to C.
——-is normally regarded as necessary for consumer consistency.
Transitive, transivity
Goods are assumed
to be desirable –i.e., to be good. Consequently, consumers always prefer more of any good to less. In addition, consumers are never satisfied or satiated; more is always better, even if just a little better.
More is better than less
This assumption is made for ——-namely, it simplifies the graphical analysis. Of course, some goods, such as air pollution, mav be undesirable, and consumers will always prefer less. We ignore these “——” in the context of our immediate discussion.
Pedagogic reason and bads
Curve representing all combinations of market baskets that provide a consumer with the same level of satisfaction.
Indifference curve
An ——— is a set of indifference curves that describes a person’s preferences.
Indifference map
Maximum amount of a good that a consumer is willing to give up in order to obtain one additional unit of another good.
Marginal rate of substitution
Two goods for which the marginal rate of substitution of one for the other is a constant.
Perfect substitution
Two goods for which the MRS is zero or infinite; the indifference curves are shaped as right angles.
Perfect complements
——Good for which less is preferred rather than more.
Bads
Numerical score representing the satisfaction that a consumer gets from a given market basket.
Utility
Formula that assigns a level of utility to individual market baskets.
Utilizing functions
Constraints that consumers face as a result of limited incomes.
budget constraints
All combinations of goods for which the total amount of money spent is equal to income.
Budget line
describes the combinations of goods that can be purchased given the consumer’s income and the prices of the goods.
Budget line
A change in income (with prices unchanged) causes the budget line to shift parallel to the original line (L_{1})
Income change
Curve tracing the utility-maximizing combinations of two goods as the price of one changes.
price-consumption curve
Curve relating the quantity of a good that a single consumer will buy to its price.
individual demand curve
An increase in a person’s income can lead to less consumption of one of the two goods being purchased
Inferior Good
relating the quantity of a good consumed to income.
Enjel curve
Measures the responsiveness/sensitivity of quantity demanded to changes in price
Elastic
