Chapter 5 Appendix Key Terms

Question 1

Budget line

Answer 1

graphically representation of all possible combinations of two commodities that a household can purchase, given the prices of the commodities and some fixed amount of money at its disposal

Question 2

Indifference curve

Answer 2

the connection on a graph of all combinations of the commodities that are equally desirable to the consumer

Question 3

Slope of an indifference curve (marginal rate of substitution or MRS)

Answer 3

graphical representation of the maximum amount of one commodity that the consumer is willing to give up in exchange for one more unit of another commodity

Question 4

Slope of a budget line

Answer 4

graphical representation of the amount of one commodity that the market requires an individual to give up to obtain one additional unit of another commodity without any change in the amount of money spent