Chapter 9

Question 1

Budget Line

Answer 1

A budget line describes the limits to its consumption choices.

Question 2

Real Income

Answer 2

Is its income expressed as a quantity of goods that the household can afford to bu.

Question 3

Relative Price

Answer 3

The price of one good divided by the price of another good.

Question 4

Indifference Curve

Answer 4

A line that shows combinations of goods among which a consumer is indifferent.

Question 5

Marginal Rate of Substitution (MRS)

Answer 5

The rate at which a person will give up a good y (y-axis), to get an additional unit of good x (x-axis) while remaining indifferent.

Question 6

A diminishing MRS

Answer 6

A general tendency for a person to be willing to give up less of good y to get one more unit of good x, while remaining indifferent as good x increases.

Question 7

Close Substitutes

Answer 7

Goods that substitute so easily for each other that most of us do not even notice which we are consuming.

Question 8

Complements

Answer 8

Goods that do not substitute for each other at all. They are needed together like a left and right shoe.

Question 9

Price Effect

Answer 9

The effect of a change in the price of a good on the quantity of the good consumed.

Question 10

Income Effect

Answer 10

The effect of a change in income on buying plans.