Chapter 31 - Indifference Curves And Budget Lines Flashcards
Indifference Curves
This shows all of the combinations of 2 goods that a consumer equal satisfaction.
Marginal Rate Of Substitution
The rate at which a consumer is wiling to substitute one good for another.
Budget Line
The combinations of 2 goods that can be purchased with given income and given prices.
Substitution Effect
Where, following a price change, a consumer will substitute the cheaper good for the one that now is relatively more expensive.
Income Effect
Where following a price change of a good, a consumer has a higher real income and will purchase more of this good.
Giffen Good
A type of inferior good where the quantity demanded falls as the price falls and the quantity demanded increases as price increases
The Margin And Decision Making
The use of indifference curves and budget lines are relevant examples of how decision-making by individuals is based at the margin.