Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Varian Intermediate Microeconomics > The Market > Flashcards

The Market Flashcards

1
Q

Pareto Efficient

A

A situation whereby we can find no way to make anyone better off without making anyone else worse off in the process.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Deadweight Loss

A

A measure of economic inefficiency - when resources left unexploited or excess production occcurs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Budget Line Equation

A

p1x2+p2x2=M

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Budget Line

A

All affordable bundles lie on or under this line

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Slope of Budget Line

A

-p1/p2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

AXIOM of weak ordering- Completeness

A

A consumer must be able to say whether they prefer or are indifferent between any 2 goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

AXIOM of weak ordering - reflexivity

A

Bundle A must be at least as good as itself

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

AXIOM of weak ordering- transitivity of preference

A

If A is preferred to B and B is preferred to C then A is also preferred to C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Rationality

A

Assumes consumer satisfies axioms of completeneness, reflexivity and transitivity -> is consistent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

AXIOM of weak ordering - continuity of preference

A

If A is weakly preferred to B, then bundles sufficiently close to A will also be weakly preferred to B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

AXIOM of weak ordering - monotonicity

A

‘more is preferred to less’

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

AXIOM of weak ordering - convexity

A

Average is preferred to the extremes, mixed bundle is better.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

MRS

A

The absolute value of the slope of the indifference curve = MRS = MU1/MU2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

MRS DECREASING

A

Convex indifference curve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

MRS CONSTANT

A

Perfect substitutes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

MRS INFINITY OR ZERO

A

Complements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Utility Maximisation Problem

A

When slope of budget line = slope of indifference curve: P1/P2=MRS=MU1/MU2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Solutions to UMP are..

A

Marshallian demand functions for x1 and x2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Marshallian demand function for x1 when utility function is Cobb-Douglas

A

x1=x1(p1,p2,M) = x1=α(M/P1)

20
Q

Marshallian demand function for x2 when utility function is Cobb-Douglas

A

x2=x2(p1,p2,M) = x2=(1-α)(M/P2)

21
Q

Marshallian demand function for x2 when utility function is Leontief (perfect complements)

A

x2*=aM/bp1+ap2

22
Q

Marshallian demand function for x1 when utility function is Leontief (perfect complements)

A

x1*=bM/bp1+ap2

23
Q

Optimal solution to UMP (exceptions)

A

Generally when p1/p1=MRS, exceptions when MRS does not exist or corner solution when MRS>P1/P2 or MRS

24
Q

Euler’s elasticity rule

A

If a function is homogenous to degree r, the sum of all elasticities will equal to r (for the Marshallian demand for any given good will have sum of price and income elasticities equal to zero)

25
Q

Own Price elasticity (e11)

A

dx1/dp1 x p1/x1

26
Q

Cobb-douglas own PED

A

dlnx1*/dlnp1

27
Q

Cobb-douglas income elasticity of demand

A

dlnx1*/dlnM

28
Q

Engel Curve

A

Tracing path of consumption as income changes, prices held constant.

29
Q

Homothetic preference

A

When MRS is a function of only the ratio of preferences, not the quantity of the goods individually

30
Q

Satiation point

A

The point of maximum satisfaction, the closer to this point the better off he is in terms of his preferences.

31
Q

Increasing slope Engel Curve (M, x1)

A

x1 necessary good

32
Q

Decreasing slope engel curve (M, X1)

A

x1 luxury good

33
Q

Constant slope engel curve

A

ratio of x2/x1 constant, homothetic preferences - income elasticity always 1

34
Q

Income elasticities of different goods are linked

A

s1 (budget share of x1)

S1E1m+(1-S1)E2m = 1

35
Q

Gross substitutes and law of demand

A

If x2 is a gross substitute of x1, the law of demand holds for x1
If dx2/dp1 > 0 then x2 is gross substitute and must be the case that dx1/dp1 < 0 (law of demand holds)

36
Q

Aggregate Demand

A

Derive market demand by summing individual marshallian demand curves

37
Q

Aggregate elasticity

A

e = weighted sum of individual elasticities= EaZa + EbZb where Za = xA/X and Za+Zb = 1

38
Q

Hicksian (Compensated) Demand Function

A

Refer to expenditure minimisation rather than utility maximisation

39
Q

Hicksian demand function for x1 when utility function is Cobb-Douglas

A

x1h=(α/1-α)^(1-α) (p2/p1)^(1-α) u0

40
Q

Marshallian demand function for x2 when utility function is Cobb-Douglas

A

x2h=(α/1-α)^(α) (p2/p1)^(α) u0

41
Q

Hicksian demand and price changes - both prices change

A

Hicksian demand homogenous to degree zero so demand will remain unchanged

42
Q

Hicksian demand and price changes - p1 increases

A

x1 must fall, x2 will rie (law of demand must hold for Hicksian demand functions)

43
Q

What effect happens with a price increase for Hicksian demand

A

Only substitution effect, no income effect.

44
Q

The slope of the Hicksian demand function

A

… is the substitution effect

45
Q

Expenditure function

A

the minimum cost of achieving a given level of utility –> E=p1x1h+p2x2h

Varian Intermediate Microeconomics (1 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions