Core Consumer Theory

Question 1

Budget constraint equation

Answer 1

M = PxX + PyY

Question 2

Budget line

Answer 2

Showing all of the feasible options of bundles

Question 3

Slope of the budget line

Answer 3

Opportunity cost of x

Question 4

Rationality

Answer 4

Preference relation has two properties:
Completeness
Transitivity

Question 5

Completeness

Answer 5

Either bundles one and bundle two are greater, less than or equal to each other

Question 6

Transitivity

Answer 6

If b1 is greater than b2 and B2 is greater than b3 then b1 is preferred to b3

Question 7

Continuity

Answer 7

If b1 is preferred to b2. And b3 is close to b1 then b3 is preferred to b2

Question 8

Axioms of consumer preference

What makes it well behaved

Answer 8

Rationality (completeness and transitivity)
Continuity
Monotonicity
Convexity - diminishing MRS

Question 9

Monotonicity

Answer 9

More is bettee

Question 10

Convexity

Answer 10

Averages are preferred to extremes. Convex set example in ms3 video

Question 11

Types of utility function

Answer 11

Cobb Douglas
Stone Geary
Perfect subs
Perfect compliments 
Quasi linear

Question 12

Marginal rate of substitution

Answer 12

The increase in y that’s required for a unit decrease in x to keep utility constant

Question 13

How to work out the MRS

Answer 13

Marginal utility of X divided by the marginal utility of Y

Question 14

In a slutsky equation, which point is identified using a profit maximisation?

Answer 14

The point which is the last. Difference between the last point and the first.

Question 15

In a slutsky equation, which point is identified using cost minimisation?

Answer 15

The point which uses the substitution effect around the isoquant.