constrained utility maximization

Question 1

elements of the model of choice

Answer 1

1. decision makers preferences over goods 2. alternatives available

Question 2

available alternatives are given by the…

Answer 2

budget constraint

Question 3

represents a person’s preferences for bundles of goods

Answer 3

utility function

Question 4

represents all combinations of goods an individual can afford

Answer 4

budget constraint

Question 5

more is always better

Answer 5

non-satiation, consumer chooses highest indifference curve

Question 6

bundles of goods that make individuals equally well off

Answer 6

indifference curve

Question 7

marginal utility

Answer 7

utility gained from an additional good consumed

Question 8

utility increases at a decreasing rate

Answer 8

diminishing marginal utility

Question 9

marginal rate of substitution

Answer 9

rate at which a consumer is willing to trade a good on one axis for one on the other axis. -MUb/MUh

Question 10

The slope of the budget constraint identifies…

Answer 10

the opportunity cost

Question 11

the price of a good is = to…

Answer 11

the marginal cost

Question 12

optimal point

Answer 12

MUh/Ph = MUb/Pb

Question 13

income effect

Answer 13

price decreases and creates appearance of more wealth

Question 14

Substitution effect

Answer 14

price decreases and demand for that good increases