Chapter 11: Household Choices Flashcards
1
Q
What is a budget constraint?
A
the limit on the consumption bundles that a consumer can afford
2
Q
What is an indifference curve?
A
shows the consumption bundles that give a consumer the same level of satisfaction
3
Q
What is the marginal rate of substitution (MRS)?
A
the rate at which a consumer is willing to trade one good for another
4
Q
What is an income effect?
A
occurs when there is a change in consumption that results in a consumer moving to a new indifference curve
5
Q
What is a substitution effect?
A
occurs when there is a change in consumption that results from a price change that moves the consumer along a given indifference curve to a point with a new marginal rate of substitution
