Lecture 2: Preferences and Utility Functions

Question 1

Consumers make choices based on these two things

Answer 1

Preferences and utility

Question 2

Utility maximization involves putting together these two factors

Answer 2

Consumer preferences and budget constraints

Question 3

True of false: “Consumer preferences” tell us what people want

Answer 3

True

Question 4

What people can afford is limited by ____ ____

Answer 4

Budget constraints

Question 5

True or false: The principle of non-satiation argues that more is always better

Answer 5

True

Question 6

In microeconomics, we make 3 preference assumptions. Name these assumptions

Answer 6

Completeness, transitivity, non-satiation

Question 7

The assumption of completeness assumes this

Answer 7

You have a preference between a set of goods you choose from

Question 8

If you prefer a to b, and b to c, then you prefer a to c, is an example of what phenomena (hint: this phenomena existing is also a preference assumption)?

Answer 8

Transitivity

Question 9

True of false: On one indifference curve, you can prefer one point to another

Answer 9

False

Question 10

An indifference curve slopes in which direction?

Answer 10

Downward

Question 11

Why can’t an indifference curve be upwards sloping?

Answer 11

Because you could prefer less of something to more of something

Question 12

Indifference curves have 4 properties. Name these.

Answer 12

Consumers prefer higher indifference curves, indifference curves are downward sloping, indifference curves never cross, there is only one indifference curve through every bundle

Question 13

Cardinal numbers show quantity, whereas ordinal numbers show _____

Answer 13

Rank

Question 14

Is utility an ordinal or cardinal concept?

Answer 14

Ordinal

Question 15

The square root of the quantity of two variables available to you is called the _____ function

Answer 15

Utility

Question 16

True or false: The concept of marginal utility suggests that the more of a thing you have, the more utility you derive from the next unit.

Answer 16

False

Question 17

The slope of the indifference curve is called the ____ ___ __ _____

Answer 17

Marginal rate of substitution

Question 18

True or false: the MRS tells us how much of y we would be willing to give up for more of x

Answer 18

True

Question 19

The diminishing incremental price raises by size in a store (small - medium - large) is reflection of this concept

Answer 19

Marginal utility