Chapter 31 - Indifference Curves And Budget Lines

Question 1

Indifference Curves

Answer 1

This shows all of the combinations of 2 goods that a consumer equal satisfaction.

Question 2

Marginal Rate Of Substitution

Answer 2

The rate at which a consumer is wiling to substitute one good for another.

Question 3

Budget Line

Answer 3

The combinations of 2 goods that can be purchased with given income and given prices.

Question 4

Substitution Effect

Answer 4

Where, following a price change, a consumer will substitute the cheaper good for the one that now is relatively more expensive.

Question 5

Income Effect

Answer 5

Where following a price change of a good, a consumer has a higher real income and will purchase more of this good.

Question 6

Giffen Good

Answer 6

A type of inferior good where the quantity demanded falls as the price falls and the quantity demanded increases as price increases

Question 7

The Margin And Decision Making

Answer 7

The use of indifference curves and budget lines are relevant examples of how decision-making by individuals is based at the margin.