lecture 5 and 6

Question 1

what does indifference curves and their slopes represent?

Answer 1

indifference curve represent preferences and their slopes show the trade-offs that we are willing to make

Question 2

what does the feasible frontier and their slopes represent?

Answer 2

feasible frontier is the constraint we face, and its slope shows the trade-off we are constrained to make

Question 3

what is the optimal choice?

Answer 3

it is when we choose the outcome that gives us the highest utility, among those that are feasible
MRS=MRT

Question 4

what does MRS>MRT mean?

Answer 4

you do more things that you want to do thant what you are require to do

Question 5

what does MRS<MRT mean?

Answer 5

you do more things that you are require to do than what you actually want to do

Question 6

what is a budget constraint?

Answer 6

is a limit on the amount of goods or services a person can buy, based on their available income and the prices of those goods or services.
It show that you can not afford everything and must make choices

Question 7

what is the income effect?

Answer 7

effect of change in income that has on the consumption of goods, keeping relative prices constant or opportunity cost of goods

Question 8

what is substitutuions effect?

Answer 8

effect of change on the consumption of each good that is only due to changes in the realtive prices or opportunity costs, given the new utility level

Question 9

what is overall effect?

Answer 9

income effect + substitution effect