Ch. 10 Consumer Choice

Question 1

utility

Answer 1

measure of satisfaction a consumer gets from consuming a good, utils

Question 2

consumption bundle

Answer 2

collection of all goods and services consumed by an individual

Question 3

utility function

Answer 3

total utility generated from consumption bundle

Question 4

marginal utility curve

Answer 4

slopes downward

Question 5

principle of diminishing marginal utility

Answer 5

satisfaction from consuming one more of a good decreases as you consume more

Question 6

indifference curves

Answer 6

maps consumption bundles which yield the same amount of total utility
1. never cross
2. further out = more utility
3. downward sloping
4. convex bc diminishing marginal utility
slope = -MUx/MUy = marginal rate of substitution

Question 7

marginal rate of substitution

Answer 7

preferential trade-off between two goods

MRS = -MUx/MUy

Question 8

budget constraint

Answer 8

consumer must chose a consumption model that doesn’t exceed income

Question 9

slope of budget line

Answer 9

-Px/Py

Question 10

marginal utility per dollar

Answer 10

additional utility from spending one more dollar on the good

MU/P

Question 11

optimal consumption rule

Answer 11

when maximizing total utility, marginal utility per dollar must be the same for all goods in the bundle
MUx/Px = MUy/Py

Question 12

diminishing marginal rate of substitution

Answer 12

someone who consumes a little A and a lot of B will be willing to trade a lot of B for a little of A

Question 13

ordinary goods

Answer 13

consumer requires more of one good to compensate for less of another
diminishing marginal rate of substitution

Question 14

tangency condition

Answer 14

at the optimal consumption bundle, the budget line is tangent to the indifference curve

Question 15

relative price rule

Answer 15

at the optimal consumption bundle
MUx/MUy = Px/Py
(optimal consumption rule)

Question 16

to form market demand curve…

Answer 16

put together individual utilities