Ch 2 Budget Constraint

Question 1

Budget constraint

Answer 1

Set of goods from which consumer can choose what they can afford

Question 2

Consumption bundle

Answer 2

How much, and what, the consumer chooses to consume

Question 3

Composite good

Answer 3

Stands for multiple, up to all except one, goods

Question 4

Budget line

Answer 4

Set of bundles with the same cost

Question 5

Budget set

Answer 5

All bundles that are affordable (at/under budget line)

Question 6

Opportunity cost

Answer 6

What is given up in favor of another option

Question 7

Numeraire price

Answer 7

Price relative to which the other price and income is measured (setting a price to one, or pegging it to another fixed value)
p1x1 +p2x2 = m; divide by a variable (p or m) to peg it to one

Question 8

Quantity tax

Answer 8

Tax on each unit of a good purchased ( ex of gas tax)

Question 9

Value tax (ad valorem tax)

Answer 9

Tax on price of good rather than quantity purchased (% sales tax)

Question 10

Quantity Subsidy

Answer 10

Government subsidy based on amount of goods purchased

Question 11

Lump sum subsidy

Answer 11

Fixed amount of money given as subsidy, regardless of quantity