Chapter 21

Question 1

Budget constraint

Answer 1

The limit on the consumption bundles that a consumer can afford

Question 2

Indifference curve

Answer 2

A curve that shows consumption bundles that give the consumer the same level of satisfaction

Question 3

Marginal rate of substitution

Answer 3

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

Question 4

Perfect substitutes

Answer 4

Two goods with straight-line indifference curves

Question 5

Perfect complements

Answer 5

Two goods with right-angle indifference curves

Question 6

Normal good

Answer 6

An increase in income leads to increase in demand

Question 7

Inferior good

Answer 7

An increase in income leads to decrease in demand

Question 8

Income effect

Answer 8

The consumption change that is the result of a price change that moves the consumer to a higher or lower indifference curve

Question 9

Substitution effect

Answer 9

The consumption change that is the result of a price change that moves the consumer along the indifference curve to a point with a new marginal rate of substitution

Question 10

Giffen good

Answer 10

A good for which an increase in price raises quantity demanded