L3 Flashcards
What decides what consumers want to buy
Their prefarences
How does budget restrictions affect consumer spending
It sets a limit to it
what else restricts the consumers ability to consume in a way that maximizes their utility rxcept their budget
Time
Why does microeconomics assume a selfish and rational customer
Because it is close enough to reality and they are easier to calculate with
What is the main source of irrational thinking
Time shortage
What does it mean that preferences are transitory
That if preference a is better than b than a is better than c if c is worse than b. They all are comparable
What are some basic assumptions about a utility maximizing consumer
Complete and transitive preferences, (known and rankable together ). Consumer is not satisfied. Consumer prefers variety so the more one has if a good the more other goods become worth in comparison
What is a utility function
A mathematical connection between the consumption of a good and the utility for a consumer.
What is an indifference curve in micro economics
A curve that shows when different amounts if the same good have the same value to a consumer
What dies it mean when the indifference curve moves to the top right
That the utility is increased
Why does the indifference curve slope downwards
Because we assume more goods are better
What is the marginal rate of substitution
The how many of good y a consumer is willing to give up for one more of good x depending in how much they have of each good. The relative value of hood x compared to y in the mind if the consumer
What happens to the indifference curve when the goods are substitutes
The curve becomes less convex at the origin aka the graph becomes more linear as having one or the other means little when it comes to utility
What causes the indifference curve to be more convex towards the origin
The goods being complements meaning that having one increases the others utility
How does the indifference curve look for perfect complements
A 90 degree angle as one is worthless without the other and thus they are always consumed together like car tires and cars
