Chapter 5 Flashcards
The consumer indifference curve shows
The various consumption combinations of the two goods that provide the same level of satisfaction to the consumer
If points A and B are on the same indifference curve then
Consumer is indifferent between point A and point B
The slope of the indifference curve is commonly referred to
MRS
The MRS has a ____________ slope
Negative/downward
Each point on the indifference curve represents a different bundle of goods X and Y that yeilds the same level of
Satisfaction (Utility)
Consumer indifference curve is downward sloping because
More of any good is always preferred to less
The shape of Indifference curve in the common case is
Convex
Indifference curves are convex because of
The principle of diminishing MRS
Why indifference curves can’t intersect
Because it represents the welfare of an individual consumer
Consumer budget constraint shows
Combinations of X and Y that can be purchased with a given level of income at fixed prices
The slope of the budget constraint is
-Px/Py
Consumer equilibrium occurs when
(MUx/MUy) = (Px/Py)
Consumer equilibrium equation can be rearranged as
(MUx/Px) = (MUy/Py)
Consumer Equilibrium is at the
Tangency between the budget constraint and an indifference curve
Most PPFs are
Bowed out
