Microecon Week 3 Flashcards
dx(PX,PY,I;preferences) denotes which function?
Demand function
‘A function whose outcome value does not change when all arguments are changed proportionally’ describes what?
Homogeneity (homogeneous demand function)
What type of good is bought in greater quantities as income increases?
Normal good
What type of good is bought in smaller quantities as income increases?
Inferior good
Which effect on consumption is due to a change in price ‘holding utility constant?’
Substitution effect (‘Hicksian’)
Which effect on consumption stems from price change causing a change in purchasing power?
Income effect
True or false: the substitution effect is always in the same direction as price change
FALSE: the substitution effect is always in the OPPOSITE direction as price change
True or false: the income effect is always in the opposite direction as price change for a normal good, and in the same direction for an inferior good
TRUE
What type of good violates basic law of demand, meaning as its price increases; demand also increases (and vice versa)?
Giffen good
What does CPI stand for?
Consumer Price Index
What does an individual demand curve plot?
An individual’s purchase of a good versus it’s price
The extra value individuals get from consuming a good over what they pay for it is known as?
Consumer surplus
The total quantity of a good demanded by all consumers is known as?
Market demand
The relationship between total quantity demanded of a good and its price, ceteris paribus, is known as?
The market demand curve
What can shift individual demand curves?
- Increases in overall income
- Reduced prices of complements, increased price of substitutes
