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Econ 11 > Theory of Consumer Behavior > Flashcards

Theory of Consumer Behavior Flashcards

1
Q

It shows the various bundles of goods that the consumer can buy for a given income

A

Budget Constraint

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2
Q

The slope of the budget constraint equals?

A

The relative price of the two goods (ex: pizza costs 5 times as Pepsi; therefore the opportunity cost of one pizza is 5 liters of Pepsi)

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3
Q

An indifference curve shows?

A

The various bundles of consumption that make the consumer equally happy

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4
Q

The rate at which the consumer is willing to substitute one good for the other

A

Marginal Rate of Substitution

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5
Q

Four Properties of Indifference Curves

A
  1. Higher indifference curves are preferred than lower ones.
  2. Indifference curves are downward-sloping
  3. Indifference curves DO NOT cross
  4. Indifference curves are bowed inward
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6
Q

The slope of an indifference curve is…

A

the marginal rate of substitution

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7
Q

When goods are easy to substitute…

A

Indifference curves are less bowed

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8
Q

When goods are hard to substitute

A

Indifference curves are very bowed

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9
Q

Two goods with straight-line indifference curves

A

Perfect Substitutes

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10
Q

Two goods with right-angle indifference curves

A

Perfect Compliments

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11
Q

The point at which the indifference curve and the budget constraint touch is the…

A

Optimum

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12
Q

It means that the Marginal Rate of Substitution equals the relative price of the two goods

A

Optimum

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13
Q

The rate at which the market is willing to trade one good for another

A

Relative Price

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14
Q

What happens at the consumer’s optimum

A

The consumer’s valuation of the two goods EQUALS the market’s valuation of the two goods

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15
Q

A good in which an increase in income raises the quantity demanded

A

Normal Good

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16
Q

A good in which an increase in income decreases the quantity demanded

A

Inferior Good

17
Q

Change in consumption that results when a price change moves the consumer to a higher or lower indifference curve

A

Income Effect (both tataas)

18
Q

Change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution

A

Substitution Effect (tataas yung isa tapos bababa yung isa)

19
Q

A good for which an increase in the price raises the quantity demanded

A

Giffen Good

20
Q

The assumption that households possess a knowledge of the qualities and prices of everything in the market and that firms have all available information concerning wage rates, capital costs, and output prices.

A

Perfect Knowledge

21
Q

3 basic decisions in a household

A
  1. How much of each product, or output, to demand
  2. How much labor to supply
  3. How much to spend today and how much to save for the future
22
Q

Determinants of Household Demand (6)

A
  1. Price of a product
  2. Income available to the household
  3. The household’s amount of accumulated wealth
  4. Prices of other products available to the household
  5. The household’s tastes and preferences
  6. The household’s expectations about future income, wealth, and prices
23
Q

set of opportunities to purchase real goods and services available to a household as determined by prices and money income

A

Real Income

24
Q

When the price of a good decreases

A

the budget constraint swivels to the right

25
Q

The satisfaction or reward a product yields relative to alternatives

A

Utility

26
Q

Additional satisfaction gained by the consumption of one more unit of something

A

Marginal Utility

27
Q

Total amount of satisfaction from consumption

A

total utility

28
Q

the more of one good consumed, the less utility

A

Law of diminishing marginal utility

29
Q

Equating the ratio of the marginal utility of a good to its price for all goods

A

Utility-Maximizing rule

30
Q

Households face constrained choices in input markets. They must decide (3)

A
  1. Whether to work
  2. How much to work
  3. What kind of job to work at
31
Q

Choices of household on how much labor to supply are affected by (3)

A
  1. Availability of jobs
  2. Market Wage Rates
  3. Skills they posses
32
Q

a complex set of institutions in which suppliers of capital and the demand for capital interact

A

financial capital market

Econ 11 (5 decks)

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