Individual Choice Flashcards
What does the completeness assumption state?
People can compare and rank all possible bundles and can always make a choice.
What is the transitivity assumption in individual choice?
People are consistent, or transitive with their choices.
What does the rational choice assumption imply?
People always choose the bundle they like most, even if presented with bundles they’re indifferent.
What does the non-satiation assumption state?
More is always better; people can never be sated.
What does continuous mean in the context of indifference curves?
Indifference curves are continuous lines.
What is the convexity assumption regarding indifference curves?
Indifference curves are convex to the origin.
What is the Marginal Rate of Substitution (MRS)?
It measures how much a person is willing to trade one good for another without changing their level of utility.
How is the MRS represented on indifference curves?
It is shown by the slope of the curve.
Fill in the blank: The completeness assumption allows individuals to _______ and rank all possible bundles.
[compare]
True or False: The non-satiation assumption suggests that people can be fully satisfied with a certain quantity of goods.
False
What is indicated by any point on an indifference curve?
It provides the same utility.
If bundle A is better than bundle C, and bundle B is better than bundle C, what can be concluded?
Bundle A is better than bundle B.
What does the slope of the indifference curve represent?
The Marginal Rate of Substitution (MRS).
Fill in the blank: The assumption of _______ suggests that individuals prefer more of a good to less.
[non-satiation]
What does a convex indifference curve imply about consumer preferences?
Consumers are willing to give up less of one good for more of another as they have more of it.
Normal good
A good for which demand increases as demand increases
Inferior good
A good for which demand decreases as income increases
