Choice Flashcards
Optimal Choice
MRS=MRT
Feasible Set
All that is attainable
What is a budget line, What are the constraints?
Frontier of the budget set, slope is MRT (price ratio)
Constrained by income and prices of the goods
Indefference curves
curve on a graph representing a combination in a bundle of goods, consumer gets the same utility from any combo in the bundle. Convex shape
3 Axioms of economic behavior, explain each
Completeness - given two alternatives the decision maker can compare the alternatives, and will weakly prefer one of the alternatives to the other, or will be indifferent
MRS
Marginal Rate of Substitution
How much someone is willing to give up of one good in order to attain an additional unit of another good while maintaining the same level of utility
MRT
Marginal Rate of Transformation
How much someone has to give up of one good in order to gain an additional unit of the other
Comparative Statics
Comparing the new equilibrium to the old equilibrium
Budget set
Consumer’s feasible set
What is attainable
Normal Good
If income increases, demand increases
Inferior Good
If income increases, demand decreases