Consumer Behaviour Flashcards
What are the assumptions of the utility function
Completeness, rankability, transativity, more is better and decreasing marginal returns as people gain but gain less and less from having more
Why does indifference curves never cross for an individual
Because it would be against transitivity.
What is the MRS in micro economics
The marginal rate of substitution of good x for good y is the ratio at which one would give up x’s to gain an additional y. It is the ratio of marginal utility in the utility function
How will the indifference curve appear if the consumer views the goods as perfect substitutes
It will be linear
How will the indifference curve appear if the consumer views the products as perfect complements
It will have a 90 degree angle at origin as the are always consumed in specific ratios to each other
How does one consume to maximize the utility using an indifference curve and a budget constraint
At the ratio at which the indifference curve tangents the feasibility line
Where does the marginal rate of substitution equal the relative price ratio
At the optimal ratio where the indifference curve tangents budget constraint
What us a corner solution in the indifference curve
It is where the optimal consumption of a good is zero
When does the marginal rate of substitution not equal the relative price ratio
At a corner solution
What factors besides comparativeutility influence what the consumer buys
Prices and your budget
