Econ Exam 3 Flashcards
You have preferences
Complete
Can rank choices from most to least preferred
Complete
What is this an example of?
Ex.- Given 2 goods, x,y
1. Prefer x to y
2. Prefer y to x
3. Indifferent
Complete
Preferences are logically consistent
Transitive
What is this an example of?
Ex.- Prefer A to B and B to C, then must prefer A to C
Transitive
If _______ + ______ are satisfied: preferences are rational.
Complete and Transitive
Ability to make typically consistent choices.
Rational
Consumers are never satisfied
More is Better
People always prefer more as long as Mu is (+)
More is Better
Never consume if Mu (-)
More is Better
Common assumptions about Preferences are:
- Complete
- Transitive
- More is Better
Also known as Utility
Total Utility
Quantitative measure of the satisfaction, or enjoyment, you get from consuming g + s
Utility (Total Utility)
Consumer’s Goal is ________ utility.
maximize
Things that make you better off ______ u
increase
Things that make you worse off ____ u
decrease
Tu = ___ + ____
Mu + Mu
The additional utility you get from consuming 1 more unit
Marginal Utility
The change in Tu from consuming 1 more unit
Marginal Utility
- As consumption increases, Mu decreases
- This is a feature of ALL consumption
Law of Diminishing Mu
Preferences are what consumers ______ to do.
want
Budgets are what consumers _______ to do.
are ABLE
We are ______ by our limited incomes.
- i.e. Consumption Possibility Frontier
constrained
All combos of good a consumer can afford with a limited income.
Budget Constraint
i = Pr + Pz
Budget Constraint
If Income increases the line shifts to the ______
right
If income decreases the line shifts to _______
left
Budget Constraint:
Vertical Int. = ____/____
Income/Pr
Budget Constraint:
Horizontal Int. = ____/____
Income/ Pz
Consumer decisions are what consumers _____ to do.
ACTUALLY choose
Optimal decisions are made at ______.
the margin
Max u; subject to BC
Consumer Equilibrium
Last dollar spent on each good yields some Mu
Consumer Equilibrium
Budget is exhausted (ALL of Budget is spent)
Consumer Equilibrium
The value of a good purchased must be at least _____ to the price.
= or the value of a good is greater than or equal to the price
The dollar value to you of the Mu derived from consuming each additional unit of a good.
Marginal Evaluation of a good
Max amount willing to pay for a good - actual price paid
Consumer Surplus
What is this an example of?
Ex.- Willing to pay: $7
Actually Paid: $4
Saved: $3
Consumer Surplus
Marginal cost= ____/______
Change in TC/change in quantity
AVC= _____/_______
Variable cost/ quantity
AFC= ______/_______
Fixed cost/ Quantity
ATC = ____/______
Total cost / Quantity
