Consumer Choice

Question 1

Preferences

Answer 1

We use three properties of preferences to predict which combinations, or bundle, of goods an individual prefers to other combinations

Question 2

Utility

Answer 2

economists summarize a consumer’s preferences using a utility function, which assigns a numerical value to each possible bundle of goods, reflecting the consumer’s relative ranking of these bundles.

Question 3

Budget Constraint

Answer 3

Prices, income, and government restrictions limit a consumer’s ability to make purchases by determing the rate at which a consumer can trade one good for another

Question 4

Constrained Consumer Choice

Answer 4

Consumers maximize their pleasure from consuming various possible bundles of goods given their income, which limits the amount of goods they can purchase.

Question 5

Behavioral economics

Answer 5

experiments indicate that people sometimes deviate from rational, maximizing behavior.

Question 6

Good

Answer 6

a commodity for which more is preferred to less at least at some levels of consumption

Question 7

bad

Answer 7

something for which less is preferred to more, such as pollution

Question 8

Indifference Curve

Answer 8

the set of all bundles that a consumer views as being equally desirable.

Question 9

Indifference map (or preference map)

Answer 9

a complete set of indifference curves that summarize a consumer’s tastes or preferences

Question 10

Marginal Rate of Substitution

Answer 10

the maximum amount of one good a consumer will sacrifice to obtain one more unit of another good.

Question 11

Perfect Substitutes

Answer 11

goods that a consumer is completely indifferent as to which to consume

Question 12

Perfect Compliments

Answer 12

goods that a consumer is interest in consuming only in fixed proportions

Question 13

utility

Answer 13

a set of numerical values that reflect the relative rankings of various bundles of goods.

Question 14

Utility Function

Answer 14

the relationship between utility values and eery possible bundle of goods

Question 15

Marginal Utility

Answer 15

The extra utility that a consumer gets from consuming the last unit of a good.

Question 16

Budget Line (or budget constraint)

Answer 16

The bundles of goods taht can be bought if the entire budget is spent on those goods at given prices.

Question 17

Opportunity Set

Answer 17

all bundles a consumer can buy, including all the bundles inside the budget constrain and on the budget constraint

Question 18

Marginal Rate of Transformation

Answer 18

The trade-off the market imposes on the consumer in terms of the amount of one good the consumer must give up to obtain more of the other good

Question 19

Process to interpret consumer theory problems?

Answer 19

Choose some object in order to maximize some objective function subject
to some constraint