Chapter 4 Flashcards
1
Q
Four assumptions about consumer preferences
A
- completeness and rankability
- consumers compare and rank bundles of goods - For most goods, more is better than less
- Transitivity
- imposes consistency on rankings - diminishing marginal utility
2
Q
How do you find marginal utility?
A
Take the partial derivative of the utility function with respect to both variables
3
Q
Characteristics of indifference curves (4)
A
- They can be drawn (completeness and rankability)
- curves farther from the origin represent higher utility (more is better than less)
- Curves never cross (transitivity)
- convex to the origin (diminshing marginal utility)`
4
Q
Marginal rate of substitution
A
slope of an indifference curve that shows how much of one good you are willing to give up for one more unit of another good
5
Q
Marginal Rate of substitution formula
A
MRSxy = - change in y/change in x OR
MUx/MUy