Chapter 3

Question 1

bundle

Answer 1

particular combination of two or more goods

Question 2

budget constraint

Answer 2

set of all bundles that exactly exhaust the consumer’s income at given prices

Question 3

affordable set

Answer 3

bundles on or below the budget constraint;

Question 4

preference ordering

Answer 4

ranking of all possible consumption bundles in order of preference.

Question 5

properties of preference ordering

Answer 5

completeness
more-is-better
transitivity
convexity

Question 6

completeness

Answer 6

if it enables the consumer to rank all possible combinations of goods and services

Question 7

more-is-better

Answer 7

other things equal, more of a good is preferred to less

Question 8

transitivity

Answer 8

for any three bundles (A,B, and C), the buyer prefers A to B, B to C, then he always prefers A to C

Question 9

convexity

Answer 9

mixtures of goods are preferable to extremes

Question 10

indifference curve

Answer 10

set of bundles among which the consumer is indifferent

Question 11

indifference map

Answer 11

graphical summary of indifference curves used as preference ordering

Question 12

Four properties of indifference curves

Answer 12

Found everywhere
Downward sloping
Cannot cross
Become less steep as you move down and rightward

Question 13

Marginal Rate of Substitution

Answer 13

rate at which the consumer is willing to exchange the good measured along the vertical axis for the good measured along the horizontal axis; equal to the absolute value of the slope of the indifference curve

Question 14

best affordable bundle

Answer 14

the most preferred bundle of those that are affordable

Question 15

corner solution

Answer 15

choice between two goods in which the consumer does not consume one of the goods

Question 16

Indifference curves with perfect substitutes are

Answer 16

straight lines

Question 17

Finding all of the consumption bundles that deliver a given ____ for a utility function enables one to derive an indifference curve.

Answer 17

value

Question 18

The affordable set of bundles make up what is known as the budget

Answer 18

triangle

Question 19

The more-is-better property is violated if indifference curves are

Answer 19

upward sloping.

Question 20

With choices involving only two goods, the budget constraint is a line. With three goods, the budget constraint becomes a

Answer 20

plane

Question 21

“The collection of goods that an individual consumes over a given time period (hour, day, month, etc.) is called a

Answer 21

consumption bundle. “

Question 22

If a consumer’s MRS is everywhere greater, or less, than the slope of his budget constraint, satisfaction

Answer 22

is maximized at a corner

Question 23

If an individual’s preferences are stable and his budget constraint is the same in two different situations, the rational choice model says he should make ____ choices.

Answer 23

identical